Bond Market Update

Short End Paces Midweek Dip

• U.S. Treasuries had a quiet showing on Wednesday, resulting in slim losses across the curve. Treasuries bounced around their starting levels throughout the midweek session after a night that saw a continued rise in Japanese Government Bond yields amid sliding expectations for a near-term rate hike from the Bank of Japan. Meanwhile in Europe, expectations for a December rate cut from the Bank of England inched higher even though CPI remained elevated in October. Treasuries added to their slight starting gains in early trade, but quickly found resistance, making it back to yesterday's lows by the late morning. These levels established a sideways range that the complex respected until the close, but all tenors slipped to fresh lows during the final minutes with the 2-yr note pacing the move. The U.S. Treasury sold $16 bln in 20-yr bonds to soft demand, but the immediate reaction was muted. December rate cut odds fell after the Bureau of labor Statistics said that the Employment Situation report for October will not see a separate release and will be published with the report for November on December 16. Crude oil fell back below $60/bbl after finding resistance near its 50-day moving average (61.01) while the U.S. Dollar Index climbed 0.7% to 100.20, rising past its 200-day moving average (99.91) toward its best level since late May.
• Yield Check:
  • 2-yr: +2 bps to 3.60%
  • 3-yr: +1 bp to 3.59%
  • 5-yr: +1 bp to 3.71%
  • 10-yr: +1 bp to 4.13%
  • 30-yr: +1 bp to 4.75%

• News:
  • The Atlanta Fed increased its GDPNow forecast for Q3 GDP to 4.2% from 4.1% in the previous estimate.
  • Treasury Secretary Bessent said that President Trump is likely to announce the next nominee for Fed Chairman by Christmas.
  • Japan Prime Minister Takaichi's cabinet is expected to approve stimulus spending on Friday with reports suggesting that the package could exceed the previously reported amount of JPY20 trln.
  • China reinstated its ban against Japanese seafood amid growing political tension between the two nations.
  • FT reported that the British government is preparing to sell British Steel after rescuing the company from insolvency in 2019.
  • The Central Bank of Iceland lowered its policy rate by 25 basis points to 7.25%.
  • Japan's September Core Machinery Orders were up 4.2% m/m (expected 2.2%; last -0.9%), rising 11.6% yr/yr (expected 5.4%; last 1.6%).
  • Australia's October MI Leading Index was up 0.1% m/m (last 0.0%). Q3 Wage Price Index was up 0.8% qtr/qtr, as expected (last 0.8%), rising 3.4% yr/yr, as expected (last 3.4%).
  • New Zealand's Q3 Input PPI was up 0.2% qtr/qtr (expected 0.9%; last 0.6%) and Output PPI was up 0.6% qtr/qtr (expected 0.7%; last 0.6%).
  • Eurozone's October CPI was up 0.2% m/m, as expected (last 0.1%), rising 2.1% yr/yr, as expected (last 2.2%). October Core CPI was up 0.3% m/m, as expected (last 0.1%), rising 2.4% yr/yr, as expected (last 2.4%). Q3 Labor Cost Index was up 3.5% yr/yr (last 3.6%). September Current Account surplus reached EUR23.1 bln (expected surplus of EUR15.9 bln; last surplus of EUR22.2 bln).
  • U.K.'s October CPI was up 0.4% m/m, as expected (last 0.0%), rising 3.6% yr/yr (expected 3.5%; last 3.8%). October Core CPI was up 0.3% m/m (expected 0.4%; last 0.0%), rising 3.4% yr/yr, as expected (last 3.5%). October Input PPI was down 0.3% m/m (expected 0.0%; last -0.1%) but up 0.5% yr/yr (expected 0.7%; last 0.7%) and Output PPI was unchanged m/m (expected 0.1%; last 0.0%), rising 3.6% yr/yr (last 3.5%). October House Price Index was up 2.6% yr/yr (expected 3.0%; last 3.0%).
• Today's Data:
  • The trade deficit was $59.6 billion in August (Briefing.com consensus: -$61.0 billion) versus a downwardly revised $78.2 billion (from $78.3 billion) in July. That was the result of exports being $0.2 billion more than July exports and imports being $18.4 billion less than July imports.
    • The key takeaway from the report is that it will factor favorably into the Q3 GDP report, given the positive contribution from the net export component.
  • The FOMC Minutes from the October meeting showed that many policymakers were in favor of not making any more policy changes before the end of the year since additional easing could increase inflation. Separately, officials noted that the inflationary impact of tariffs is expected to be limited this year.
  • The weekly MBA Mortgage Index was down 5.2% to follow last week's 0.6% increase. The Purchase Index fell 2.3% while the Refinance Index was down 7.3%.
  • Weekly crude oil inventories decreased by 3.43 mln barrels after increasing by 6.41 mln barrels a week ago.
  • $16 bln 20-year Treasury bond auction results (prior 12-auction average):
    • High yield: 4.706% (4.788%).
    • Bid-to-cover: 2.41 (2.61).
    • Indirect bid: 59.5% (66.3%).
    • Direct bid: 29.1% (19.9%).
• Commodities:
  • WTI crude: -2.3% to $59.29/bbl
  • Gold: +0.5% to $4082.70/ozt
  • Copper: +0.8% to $5.02/lb
• Currencies:
  • EUR/USD: -0.5% to 1.1521
  • GBP/USD: -0.8% to 1.3045
  • USD/CNH: +0.1% to 7.1183
  • USD/JPY: +1.0% to 157.00
• The Day Ahead:
  • 8:30 ET: September Nonfarm Payrolls (Briefing.com consensus 50,000; prior 22,000), Nonfarm Private Payrolls (Briefing.com consensus 58,000; prior 38,000), Unemployment Rate (Briefing.com consensus 4.3%; prior 4.3%), Average Hourly Earnings (Briefing.com consensus 0.3%; prior 0.3%), Average Workweek (Briefing.com consensus 34.3; prior 34.2), November Philadelphia Fed survey (Briefing.com consensus 2.0; prior -12.8), and weekly Initial Claims (Briefing.com consensus NA; prior NA) and Continuing Claims (prior NA)
  • 10:00 ET: October Existing Home Sales (Briefing.com consensus 4.08 mln; prior 4.06 mln) and October Leading Indicators (prior NA)
  • 10:30 ET: Weekly natural gas inventories (prior +45 bcf)