Bond Market Update

5-Yr Yield Revisits 50-Day Moving Average

• U.S. Treasuries finished Wednesday on a slightly lower note after retreating from their morning highs. The midweek session was largely uneventful, keeping the 10-yr yield inside a four-basis point range. The trading day started with gains that were paced by longer tenors after a night that featured a larger-than-expected rate cut from the Reserve Bank of New Zealand. Treasuries spent the first hour of trade near their starting levels, but pressure began building alongside an upbeat open in equities. The early reversal sent the 5-yr note and shorter tenors into negative territory while the entire complex faced some more pressure after the U.S. Treasury followed yesterday's solid 3-yr note sale with a weak $39 bln 10-yr note reopening. Today's selling lifted the 5-yr yield back to its 50-day moving average (3.731%) while yields on other tenors remain below their respective 50-day moving averages. Crude oil climbed for the fourth consecutive day while the U.S. Dollar Index rose 0.4% to 98.92, reaching its best level since early August.
• Yield Check:
  • 2-yr: +1 bp to 3.58%
  • 3-yr: +2 bps to 3.60%
  • 5-yr: +1 bp to 3.72%
  • 10-yr: UNCH at 4.13%
  • 30-yr: UNCH at 4.72%

• News:
  • The Reserve Bank of New Zealand lowered its official cash rate by 50 basis points to 2.50% against expectations for a 25-basis point cut. The new rate is slightly below the previously anticipated terminal rate of 2.55%.
  • Reports related to Golden Week activity in China suggest that a lot of travel took place, but spending was restrained.
  • There is a growing concern that France will miss its deadline for submitting a 2026 budget due to the ongoing political paralysis.
  • European Central Bank policymakers Nagel, Rehn, and Escriva spoke about inflation being essentially on target at this time.
  • Japan's October Reuters Tankan Index fell to 8 from 13. August Overall Wage Income was up 1.5% yr/yr (expected 2.6%; last 3.4%). August Current Account surplus reached JPY2.46 trln (expected surplus of JPY2.45 trln; last surplus of JPY1.88 trln). September Economy Watcher Current Index rose to 47.1 from 46.7 (expected 47.0).
  • Australia's August Building Approvals were down 6.0% m/m, as expected (last -8.2%) and Private House Approvals fell 2.6% m/m, as expected (last 1.1%).
  • Germany's August Industrial Production was down 4.3% m/m (expected -1.0%; last 1.3%), falling 4.2% yr/yr (last 1.5%).
• Today's Data:
  • The September FOMC Minutes showed that most policymakers believe that additional easing will be appropriate this year, though officials remain on the lookout for upside risks to inflation.
  • The weekly MBA Mortgage Index fell 4.7% to follow last week's 12.7% drop. The Refinance Index was down 7.7% while the Purchase Index was down 1.2%.
  • Weekly crude oil inventories increased by 3.72 mln barrels after increasing by 1.79 mln barrels a week ago.
  • $39 bln 10-year Treasury note reopening results (prior 12-auction average):
    • High yield: 4.117% (4.308%).
    • Bid-to-cover: 2.48 (2.58).
    • Indirect bid: 66.8% (70.9%).
    • Direct bid: 24.1% (17.6%).
• Commodities:
  • WTI crude: +1.4% to $62.57/bbl
  • Gold: +1.7% to $4070.40/ozt
  • Copper: UNCH at $5.10/lb
• Currencies:
  • EUR/USD: -0.3% to 1.1624
  • GBP/USD: -0.3% to 1.3393
  • USD/CNH: +0.1% to 7.1496
  • USD/JPY: +0.5% to 152.65
• The Day Ahead:
  • 8:30 ET: Weekly Initial Claims (Briefing.com consensus 233,000; prior NA) and Continuing Claims (prior NA)
  • 10:00 ET: August Wholesale Inventories (Briefing.com consensus -0.2%; prior 0.1%)
  • 10:30 ET: Weekly natural gas inventories (prior +53 bcf)
• Treasury Auctions:
  • 13:00 ET: $22 bln 30-yr Treasury bond reopening results