Bond Market Update

Opening Losses Reversed

• U.S. Treasuries overcame some opening weakness on Tuesday, recording their first higher finish since Thursday. The trading day started with modest losses after the night featured ongoing focus on recent changes in the political landscape in Japan and growing uncertainty in France. French President Macron gave Sebastien Lecornu another 48 hours to try forming a government, but there is a growing sense that a general election is not far away. Treasuries began rising off their starting lows in early trade, accelerating their bounce as equities struggled to sustain their higher start. The bounce off lows took place even though the latest Survey of Consumer Expectations from the NY Fed showed an uptick in year-ahead inflation expectations to 3.4% from 3.2% while the five-year outlook increased to 3.0% from 2.9%. The three-year outlook remained at 3.0%. The bounce produced highs in the early afternoon, shortly after the U.S. Treasury sold $58 bln in 3-yr notes to strong demand, with Treasuries finishing near their closing levels from last week. Crude oil inched back to its closing level from last Wednesday while the U.S. Dollar Index rose 0.5% to 98.59.
• Yield Check:
  • 2-yr: -3 bps to 3.57%
  • 3-yr: -3 bps to 3.58%
  • 5-yr: -4 bps to 3.71%
  • 10-yr: -4 bps to 4.13%
  • 30-yr: -3 bps to 4.73%

• News:
  • The Atlanta Fed's GDPNow forecast for Q3 GDP was left unrevised at 3.8% in the latest update.
  • 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).
• Today's Data:
  • Consumer credit increased by $0.4 billion in August (Briefing.com consensus: $13.1 billion) following an upwardly revised $18.0 billion increase (from $16.0 billion) in July.
    • The key takeaway from the report is that the expansion in consumer credit was miniscule in August due to a decrease in revolving credit, which saw its biggest decrease since March.
  • $58 bln 3-year Treasury note auction results (prior 12-auction average):
    • High yield: 3.576% (3.943%).
    • Bid-to-cover: 2.66 (2.59).
    • Indirect bid: 62.7% (64.5%).
    • Direct bid: 26.6% (19.9%).
• Commodities:
  • WTI crude: +0.1% to $61.72/bbl
  • Gold: +0.7% to $4004.00/ozt
  • Copper: +1.2% to $5.10/lb
• Currencies:
  • EUR/USD: -0.4% to 1.1656
  • GBP/USD: -0.4% to 1.3430
  • USD/CNH: +0.1% to 7.1455
  • USD/JPY: +1.0% to 151.75
• The Day Ahead:
  • 7:00 ET: Weekly MBA Mortgage Index (prior -12.7%)
  • 10:30 ET: Weekly crude oil inventories (prior +1.79 bln)
• Treasury Auctions:
  • 13:00 ET: $39 bln 10-yr Treasury note reopening results