Bond Market Update

 Longer Tenors Lead Early Weakness

• U.S. Treasuries are on track for a modestly lower start in longer tenors while the short end is expected to show some relative strength, continuing yesterday's outperformance. Treasury futures spent the early portion of the night in a sideways range, sliding to lows during the past hour. The overnight data slate was on the light side, but there have been some other developments. Rate hike expectations in Japan have fallen significantly with the market seeing just one more increase before the end of the year. In Europe, French Prime Minister Lecornu, who resigned, has been given another 48 hours to form a government. The U.S. government shutdown is continuing, so the market will not receive the August Trade Balance report (Briefing.com consensus -$61.0 bln; prior -$60.2 bln) at 8:30 ET. The market should still receive the 15:00 ET release of August Consumer Credit (Briefing.com consensus $13.1 bln; prior $16.0 bln), which will be preceded by a $58 bln 3-yr note auction at 13:00 ET. Crude oil is little changed while the U.S. Dollar Index is up 0.4% at 98.50.
• Yield Check:
  • 2-yr: UNCH at 3.60%
  • 3-yr: +1 bp to 3.62%
  • 5-yr: +1 bp to 3.76%
  • 10-yr: +2 bps to 4.18%
  • 30-yr: +1 bp to 4.77%

• News:
  • The World Bank raised China's 2025 growth forecast to 4.8% from 4.2% while the outlook for 2026 was increased to 4.2% from 4.0%.
  • It is still unclear which parties will comprise Japan's new government amid reports that the current coalition partner, Komeito, may not want to continue working with LDP.
  • Expectations for an October rate hike from the Bank of Japan fell to 23.5% while the implied likelihood of a December hike remains just above 50%, hovering around 56%, down sharply from 76.5% on Friday.
  • There are growing signs that French President Macron will have to dissolve the National Assembly, resulting in new elections. For now, outgoing Prime Minister Lecornu has been given another 48 hours to try forming a government.
  • Japan's August Household Spending was up 0.6% m/m (expected 0.1%; last 1.7%), rising 2.3% yr/yr (expected 1.4%; last 1.4%). August Leading Index hit 107.4 (expected 107.1; last 106.1) and Coincident Indicator was down 0.7% m/m (last 0.3%).
  • Australia's October Westpac Consumer Sentiment was down 3.5% (last -3.1%). September ANZ Job Advertisements fell 3.3% m/m (last -0.3%).
  • New Zealand's Q3 NZIER Business Confidence increased 18% (last 22%).
  • Germany's August Factory Orders were down 0.8% m/m (expected 1.2%; last -2.7%).
  • U.K.'s September Halifax House Price Index was down 0.3% m/m (expected 0.2%; last 0.2%) but up 1.3% yr/yr (expected 2.2%; last 2.0%).
  • France's August trade deficit reached EUR5.5 bln (expected deficit of EUR5.2 bln; last deficit of EUR5.7 bln).
• Commodities:
  • WTI Crude: -0.1% to $61.61/bbl 
  • Gold: +0.3% to $3988.50/ozt
  • Copper: +0.6% to $5.07/lb
• Currencies:
  • EUR/USD: -0.4% to 1.1659
  • GBP/USD: -0.6% to 1.3396
  • USD/CNH: +0.1% to 7.1478
  • USD/JPY: +0.4% to 150.90
• Data out Today:
  • 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