Bond Market Update

Intraday Bounce Helps Longer Tenors Climb Again

• U.S. Treasuries had a mixed showing ahead of tomorrow's Thanksgiving closure with 5s and shorter tenors recording their first set of losses in five days while 10s and 30s climbed for the fifth day in a row. The trading day started in quiet fashion even though the night featured some focus on diverging paths of central banks in the Asia-Pacific region. The Reserve Bank of New Zealand announced an expected rate cut and hinted at a looming end to its easing cycle and there was also growing speculation that Australia's easing cycle has concluded. Treasuries retreated from their starting levels during the first couple hours of action, but 5s and longer tenors staged a solid bounce after approaching their closing levels from Monday while shorter tenors were more reluctant in their rise off lows. Economic data that was released during the morning retreat showed a welcome drop in weekly jobless claims that produced the lowest level of Initial Claims (216,000; Briefing.com consensus 225,000) since April and a stronger-than-expected growth in Durable Orders for September (0.5%; Briefing.com consensus 0.3%). However, the Chicago PMI (36.3; Briefing.com consensus 44.5) showed a marked deceleration in manufacturing activity in the Chicago Fed region. The intraday bounce off lows eventually returned the 10-yr note to its opening level while the long bond settled at a fresh high. The market sustained its bounce through today's $44 bln 7-yr note auction, even though it was the second underwhelming note auction in a row. Crude oil climbed above $58.50/bbl while strength in precious metals lifted silver toward $53/ozt with its record high from mid-November (54.42) looming just above. The U.S. Dollar Index slipped 0.1% to 99.60, finding some resistance near its 200-day moving average (99.74). Happy Thanksgiving!
• Yield Check:
  • 2-yr: +2 bps to 3.48%
  • 3-yr: +2 bps to 3.47%
  • 5-yr: +1 bp to 3.57%
  • 10-yr: UNCH at 4.00%
  • 30-yr: -1 bp to 4.64%

• News:
  • The Atlanta Fed's GDPNow forecast for Q3 GDP was reduced to 3.9% from 4.0% in the latest estimate.
  • The Bank of Korea will release its latest statement overnight, but the policy rate is expected to remain at 2.50%.
  • European Central Bank policymaker Vucic said that risks to growth and inflation are balanced at this time while policymaker De Guindos said that trade uncertainty has receded.
  • British Chancellor Reeves announced that taxes will increase by GBP26 bln by 2030, in line with recent speculation.
  • The International Monetary Fund voiced concern that the German economy is at risk of undershooting growth expectations without reforms.
  • The Reserve Bank of New Zealand lowered its cash rate by 25 basis points to 2.25%, as expected, noting that it sees risks as balanced at this time. The central bank left the option of another rate cut on the table for 2026.
  • Press reports from Japan suggested that the Bank of Japan could announce its next rate hike at the December meeting with the market almost certain that the hike will be announced no later than the end of January.
  • Japan's October Corporate Services Price Index was up 2.7% yr/yr, as expected (last 3.1%) and September BoJ Core CPI was up 2.2% yr/yr, as expected (last 2.1%). September Leading Index rose to 108.6 from 107.0 (expected 108.0).
  • South Korea's November Business Confidence rose to 70 from 68.
  • Singapore's October Industrial Production was up 11.5% m/m (expected -3.5%; last 26.4%), jumping 29.1% yr/yr (expected 9.5%; last 16.2%).
  • Australia's Q3 Construction Work Done was down 0.7% qtr/qtr (expected 0.2%; last 2.9%). October CPI was unchanged 0.0% m/m (last 0.5%), rising 3.8% yr/yr (last 3.6%).
  • Swiss November ZEW Expectations rose to 12.2 from -7.7.
• Today's Data:
  • Initial jobless claims for the week ending November 22 decreased by 6,000 to 216,000 (Briefing.com consensus: 225,000). That is the lowest level of initial claims since April. Continuing jobless claims for the week ending November 15 increased by 7,000 to 1.960 million.
    • The key takeaway from the report is that initial claims filings are nowhere close to a recession-type level and continue to reflect a generally low-firing environment.
  • Durable goods orders increased 0.5% month-over-month in September (Briefing.com consensus: 0.3%) following an upwardly revised 3.0% increase (from 2.9%) in August. Excluding transportation, durable goods orders rose 0.6% (Briefing.com consensus: 0.2%) following an upwardly revised 0.5% increase (from 0.4%) in August.
    • The key takeaway from the report is that business spending, viewed through the lens of nondefense capital goods orders excluding aircraft (+0.9%), showed no signs of slowing, keeping pace with the 0.9% increase seen in August and exceeding the 0.7% growth rate in July.
  • The Chicago PMI hit 36.3 in November (Briefing.com consensus 44.5), down from 43.8 in October.
  • The weekly MBA Mortgage Index was up 0.2% to follow last week's 5.2% decrease. The Purchas Index rose 7.7% while the Refinance Index was down 5.7%.
  • The Fed's November Beige Book reported little overall change in activity since October. Two Districts saw modest softness while one saw modest growth. Consumer spending weakened but spending on higher-end items remained strong. There was no significant change in travel trends while Manufacturing increased slightly. There was some pressure on overall employment while prices rose moderately.
  • Weekly crude oil inventories increased by 2.77 mln barrels after decreasing by 3.43 mln barrels a week ago.
  • Weekly natural gas inventories decreased by 11 bcf after decreasing by 14 bcf a week ago.
  • $44 bln 7-year Treasury note auction results (prior 12-auction average):
    • High yield: 3.781% (4.142%).
    • Bid-to-cover: 2.46 (2.60).
    • Indirect bid: 56.7% (67.4%).
    • Direct bid: 30.3% (22.5%).
• Commodities:
  • WTI crude: +1.2% to $58.67/bbl
  • Gold: +1.5% to $4202.40/ozt
  • Copper: +2.0% to $5.19/lb
• Currencies:
  • EUR/USD: +0.2% to 1.1593
  • GBP/USD: +0.5% to 1.3234
  • USD/CNH: -0.2% to 7.0685
  • USD/JPY: +0.3% to 156.46
• The Day Ahead:
  • Bond and equity markets closed for Thanksgiving
• Friday:
  • NYSE to close at 13:00 ET and Treasury market to close at 14:00 ET