Bond Market Update

Treasuries Slide Amid Shifting Political Winds

• U.S. Treasuries started the week on a lower note, adding to their losses from Friday. Treasuries started the session near their lowest levels of the day, sliding alongside other sovereign debt after a weekend LDP leadership election in Japan produced a surprise winner who supports fiscal stimulus and loose monetary policy. The election of Sanae Takaichi, who is expected to become prime minister after a parliamentary vote later this month, gave a big boost to the Nikkei (+4.8%) and caused the yen to lose 2.0% against the dollar. The European session also featured some surprising political news, as French Prime Minister Lecornu resigned after just 27 days in office due to a broad disagreement about fiscal policy and pension reform. French debt retreated in reaction, sending the country's 10-yr yield toward the September peak (3.620%), which also marks a record high. Treasuries followed their lower start with a brief bounce attempt that found resistance during an upbeat open on Wall Street. Late morning trade saw a return to lows, followed by sideways action into the close. Crude oil advanced after OPEC+ confirmed last week's speculation about a 137,000 barrel increase to its daily output in November while the U.S. Dollar Index rose 0.4% to 98.12.
• Yield Check:
  • 2-yr: +3 bps to 3.60%
  • 3-yr: +2 bps to 3.61%
  • 5-yr: +4 bps to 3.75%
  • 10-yr: +4 bps to 4.16%
  • 30-yr: +4 bps to 4.76%

• News:
  • Most members of the Reserve Bank of New Zealand's shadow board support a rate cut on Tuesday night.
  • European Central Bank policymaker De Guindos said that rates are at an appropriate level, but uncertainty remains high.
  • OPEC+ announced that daily output will be increased by 137,000 barrels in November, in line with reports from last week.
  • Hong Kong's September Manufacturing PMI hit 50.4 (last 50.7).
  • India's September Services PMI hit 60.9 (expected 61.6; last 63.2).
  • Australia's September MI Inflation Gauge was up 0.4% m/m (last -0.3%).
  • New Zealand's September ANZ Commodity Price Index was down 1.1% m/m (last 0.7%).
  • Eurozone's August Retail Sales were up 0.1% m/m, as expected (last -0.4%), rising 1.0% yr/yr (last 2.1%). October Sentix Investor Confidence rose to -5.4 from -9.2 (expected -7.5).
  • U.K.'s September Construction PMI hit 46.2 (expected 46.1; last 45.5).
  • Spain's August Industrial Production was up 3.4% yr/yr (last 2.7%).
  • Swiss September Unemployment Rate rose to 3.0% from 2.9% (expected 2.9%).
• Commodities:
  • WTI crude: +1.4% to $61.69/bbl
  • Gold: +1.7% to $3975.90/ozt
  • Copper: -1.4% to $5.04/lb
• Currencies:
  • EUR/USD: -0.2% to 1.1713
  • GBP/USD: UNCH at 1.3483
  • USD/CNH: +0.1% to 7.1421
  • USD/JPY: +2.0% to 150.31
• The Day Ahead: 
  • 8:30 ET: August Trade Balance (Briefing.com consensus -$61.0 bln; prior -$60.2 bln) 
  • 15:00 ET: August Consumer Credit (Briefing.com consensus $13.1 bln; prior $16.0 bln)
• Treasury Auctions:
  • 13:00 ET: $58 bln 3-yr Treasury note auction results