Bond Market Update

Treasuries Steady as Rate Cut Looms

• U.S. Treasuries recorded slight gains on Tuesday after spending the session in a sideways range that narrowed as the day went on, leading into tomorrow's widely expected 25-basis point rate cut from the FOMC. The trading day started with slim gains in most tenors after a night that featured President Trump's meeting with Japan's Emperor Naruhito and Prime Minister Takaichi. The visit to Japan was deemed a success and was described as the start of a new golden age for the U.S.-Japan alliance. Treasuries gave back their opening gains quickly but found support just above yesterday's intraday lows. The market bounced around 9:00 ET with most tenors reaching fresh highs about an hour later. The rest of the session saw a sideways drift just below the day's best levels with the market holding up well through an underwhelming $44 bln 7-yr note sale that made for a poor conclusion to this week's note offering slate. Crude oil fell to its lowest level in nearly a week after finding resistance near its 50-day moving average (62.15) while the U.S. Dollar Index slipped 0.1% to 98.68.
• Yield Check:
  • 2-yr: -1 bp to 3.49%
  • 3-yr: -1 bp to 3.50%
  • 5-yr: UNCH at 3.61%
  • 10-yr: -1 bp to 3.98%
  • 30-yr: -2 bps to 4.55%

• News:
  • Press reports from Japan suggest that about ten companies have expressed interest in about $400 bln worth of investment projects in the U.S.
  • Reserve Bank of Australia Governor Bullock said that current RBA policy remains a bit restrictive.
  • The European Central Bank's Q3 lending survey showed slight tightening in overall credit standards.
  • The French government paved the way for higher corporate taxes on large companies.
  • Japan's September BoJ Core CPI rose to 2.1% yr/yr from 2.0%, as expected.
  • South Korea's flash Q3 expanded GDP 1.2% qtr/qtr (last 0.7%), growing 1.7% yr/yr (expected 0.9%; last 0.6%). October Consumer Confidence fell to 109.8 from 110.1.
  • Germany's November GfK Consumer Climate fell to -24.1 from -22.5 (expected -22.0).
  • Italy's October Business Confidence rose to 88.3 from 87.4 (expected 87.5) and Consumer Confidence rose to 97.6 from 96.8.
• Today's Data:
  • The Conference Board's Consumer Confidence Index slipped to 94.6 in October (Briefing.com consensus 94.2) from an upwardly revised 95.6 (from 94.2) in September. In the same period a year ago, the index stood at 109.6.
    • The key takeaway from the report is that there wasn't much change in consumer confidence in October, as a small uptick in views about the present situation was offset by a small drop in views about the outlook.
  • The FHFA Housing Price Index was up 0.4% month-over-month in August (Briefing.com consensus 0.1%) after a revised flat reading (from -0.1%) in July.
  • The S&P Case-Shiller Home Price Index was up 1.6% year-over-year in August (Briefing.com consensus 1.9%), down from 1.8% in July.
  • $44 bln 7-year Treasury note auction results (prior 12-auction average):
    • High yield: 3.790% (4.177%).
    • Bid-to-cover: 2.46 (2.62).
    • Indirect bid: 59.0% (68.5%).
    • Direct bid: 27.8% (21.9%).
• Commodities:
  • WTI crude: -1.9% to $60.16/bbl
  • Gold: -0.9% to $3982.80/ozt
  • Copper: UNCH at $5.17/lb
• Currencies:
  • EUR/USD: +0.2% to 1.1664
  • GBP/USD: -0.4% to 1.3282
  • USD/CNH: -0.2% to 7.0931
  • USD/JPY: -0.5% to 152.04
• The Day Ahead:
  • 7:00 ET: Weekly MBA Mortgage Index (prior -0.3%)
  • 8:30 ET: September advance International Trade in Goods (prior -$85.5 bln), advance Retail Inventories (prior 0.0%), and advance Wholesale Inventories (prior -0.2%)
  • 10:00 ET: September Pending Home Sales (Briefing.com consensus 1.2%; prior 4.0%)
  • 10:30 ET: Weekly crude oil inventories (prior -0.961 mln)
  • 14:00 ET: October FOMC Decision (Briefing.com consensus 3.75-4.00%; prior 4.00-4.25%)