Bond Market Update

Sideways Drift

• U.S. Treasuries saw some selling early in the cash session that resulted in yields drifting higher across the curve. The bulk of today's cash trade, however, had a sideways drift, with securities trading in tight ranges. Stocks and commodities traded lower on some profit-taking activity; meanwhile, the dollar continued to run, underpinned by the political uncertainty in France, expectations that Japan's new LDP leader will promote easy fiscal and monetary policy, and Fed Governor Barr's (FOMC voter) view that the FOMC should be cautious about adjusting policy. Today's session was bereft of key economic data as the U.S. government shutdown carried into day nine and now looks headed for day 10, as the Senate once again failed to get the 60 votes needed to pass a continuing resolution. The $22 bln 30-yr bond reopening saw a muted reaction as the high yield of 4.734% tailed the when-issued yield by a slight margin. The U.S. Dollar Index was up 0.6% to 99.50.
• Yield Check:
  • 2-yr: +2 bps to 3.60%
  • 3-yr: +1 bp to 3.61%
  • 5-yr: +2 bps to 3.74%
  • 10-yr: +2 bps to 4.15%
  • 30-yr: +1 bp to 4.73%

• News:
  • U.S. government shutdown enters day nine. Some Republicans are against the White House conducting mass firings during shutdown. WSJ
  • China's Ministry of Commerce announced tightening of export restrictions on rare earth materials for high-tech products and military applications
  • Treasury Secretary Scott Bessent says Treasury "directly purchased Argentine pesos. Additionally, we have finalized a $20 billion currency swap framework with Argentina’s central bank"
  • Fed Governor Barr (FOMC voter) says the FOMC should be cautious about adjusting policy so that it can gather more data and better assess the balance of risks
  • President Trump says will be making permanent cuts to Democrat programs
  • President Macron is expected to name a new prime minister before the weekend.
  • The Supreme Court will hear a case next week challenging a key section of the Voting Rights Act. If it is overturned, it could allow Republicans to draw up to 19 new House seats in their favor, all but guaranteeing them control of the lower chamber. Politico
  • President Trump expected to exclude generic drugs from pharmaceutical tariffs. WSJ
  • Bank of England policymaker Mann making a case for policy to remain restrictive due to inflation concerns.
  • Delta Air Lines CEO Ed Bastian, in CNBC interview, says demand for travel started to rebound in June and July and that he is not seeing any impact "at all" from the government shutdown
  • USD/JPY topped 153.00 overnight, spurring more speculation about the possibility of MOF intervention soon.
  • The Philippines central bank unexpectedly cut its base interest rate by 25 bps to 4.75% versus an expectation for no change
  • Germany's August trade balance was EUR17.2 bln (expected EUR15.1 bln; prior EUR14.7 bln), with exports -0.5% m/m (expected 0.3%; prior -0.6%) and imports -1.3% m/m (expected -0.5%; prior -0.1%)
• Today's data:
  • EIA Natural Gas Inventories +80 bcf (prior +53 bcf)
  • $22 bln 30-yr bond reopening (prior 12-auction average):
    • High yield: 4.734% (4.720%)
    • Bid-to-cover: 2.38 (2.41)
    • Indirect bid: 64.5% (64.1%)
    • Direct bid: 26.9% (22.5%)
• Commodities:
  • WTI crude: -1.8% to $61.42/bbl
  • Gold: -2.3% to $3976.50/ozt
  • Copper: -0.2% to $5.09/lb
• Currencies:
  • EUR/USD: -0.7% to 1.1548
  • GBP/USD: -0.9% to 1.3283
  • USD/CNH: -0.2% to 7.1381
  • USD/JPY: +0.3% to 153.12
• The Day Ahead:
  • 10:00 ET: Preliminary October Univ. of Michigan Consumer Sentiment (Briefing.com consensu: 54.5; prior 55.1)
  • 14:00 ET: September Treasury Budget (Briefing.com consensus: -$83.0B; prior -$344.8B) could be delayed due to government shutdown