Bond Market Update

Recent Gains Trimmed

• U.S. Treasuries ended the Thanksgiving week on a modestly lower note, giving back some of their gains from the first half of the week. The Treasury complex was little changed at the start of the cash session after an overnight outage at the CME crippled futures trading until the early morning. Treasuries began sliding immediately after the open even though the market did not receive any data. The selling continued until the late morning, lifting yields toward their highs from Wednesday. The selling lifted the 30-yr yield back above its 50-day moving average (4.679%), but a midday rise off lows, pressured the 30-yr yield back below that mark. Even with today's retreat, yields remain near their lowest levels in a month thanks to the recent bounce in December rate cut expectations. Crude oil extended this week's gain to $1.38/bbl, or 2.4%, while the U.S. Dollar Index slipped 0.1% to 99.47, losing 0.7% for the week.
• Yield Check:
  • 2-yr: +1 bp to 3.49% (-2 bps this week)
  • 3-yr: +2 bps to 3.49% (-1 bp this week)
  • 5-yr: +3 bps to 3.60% (-2 bps this week)
  • 10-yr: +2 bps to 4.02% (-4 bps this week)
  • 30-yr: +2 bps to 4.67% (-5 bps this week)

• News:
  • Japan's Ministry of Finance said that primary dealers want to see more issuance of 2-, 5-, and 10-yr JGBs and a reduced supply of ultra long JGBs.
  • A Bank of Japan policymakers said that underlying inflation remains below the 2.0% target even after years of above-target CPI readings.
  • Japan's November Tokyo CPI was up 2.7% yr/yr, as expected (last 2.8%) and Tokyo Core CPI was up 2.8% yr/yr (expected 2.7%; last 2.8%). October Retail Sales rose 1.7% yr/yr (expected 0.8%; last 0.2%), October Industrial Production rose 1.4% m/m (expected -0.5%; last 2.6%), and October Unemployment Rate remained at 2.6% (expected 2.5%). October jobs/applications ratio fell to 1.18 from 1.20 (expected 1.20). October Housing Starts were up 3.2% yr/yr (expected -5.0%; last -7.3%) and Construction Orders were down 10.1% yr/yr (last 34.7%).
  • South Korea's October Industrial Production fell 4.0% m/m (expected -0.2%; last -1.1%), dropping 8.1% yr/yr (last 11.9%). October Retail Sales rose 3.5% m/m (last -0.1%) and October Service Sector Output was down 0.6% m/m (last 2.0%).
  • India's Q2 GDP expanded 8.2% yr/yr (expected 7.3%; last 7.8%).
  • Australia's October Private Sector Credit was up 0.7% m/m (expected 0.6%; last 0.6%) and Housing Credit was up 0.6% m/m (last 0.6%).
  • Germany's October Import Price Index was up 0.2% m/m (expected 0.0%; last 0.2%), but down 1.4% yr/yr (expected -1.6%; last -1.0%). October Retail Sales fell 0.3% m/m (expected 0.1%; last 0.3%) but were up 0.9% yr/yr (last 3.4%). November unemployment increased by 1,000 (expected 4,000; last -2,000) and Unemployment Rate remained at 6.3%, as expected.
  • France's flash November CPI was down 0.1% m/m (expected 0.0%; last 0.1%) and up 0.9% yr/yr (expected 1.0%; last 0.9%). October PPI was unchanged m/m (last -0.1%), falling 0.8% yr/yr (last 0.1%). Q3 GDP expanded 0.5% qtr/qtr, as expected (last 0.3%), growing 0.9% yr/yr, as expected (last 0.7%). October Consumer Spending was up 0.4% m/m (expected 0.3%; last 0.3%). Q3 Nonfarm Payrolls were unchanged qtr/qtr (expected -0.3%; last 0.2%). October jobseeker total rose to 3.151 mln from 3.082 mln.
  • Italy's Q3 GDP expanded 0.1% qtr/qtr (expected 0.0%; last -0.1%), growing 0.6% yr/yr (expected 0.4%; last 0.4%). November CPI was down 0.2% m/m (expected -0.1%; last -0.3%) but up 1.2% yr/yr (last 1.2%).
  • Spain's flash November CPI was up 0.2% m/m (last 0.7%), rising 3.0% yr/yr, as expected (last 3.1%). November Core CPI was up 2.6% yr/yr (last 2.5%). October Retail Sales rose 3.8% yr/yr (last 4.1%). September Current Account surplus reached EUR1.87 bln (last surplus of EUR5.08 bln).
  • Swiss Q3 GDP decreased 0.5% qtr/qtr (expected -0.4%; last 0.2%) but was up 0.5% yr/yr (last 1.3%). November KOF Leading Indicators rose to 101.7 from 101.5 (expected 100.9).
• Commodities:
  • WTI crude: +1.3% to $59.44/bbl
  • Gold: +1.3% to $4255.70/ozt
  • Copper: +1.5% to $5.27/lb
• Currencies:
  • EUR/USD: +0.1% to 1.1601
  • GBP/USD: UNCH at 1.3237
  • USD/CNH: -0.1% to 7.0687
  • USD/JPY: -0.1% to 156.13
• The Week Ahead:
  • Monday: Final November S&P Global U.S. Manufacturing PMI (prior 52.5%) at 9:45 ET; September Construction Spending (Briefing.com consensus 0.0%) and November ISM Manufacturing Index (Briefing.com consensus 49.0%; prior 48.7%) at 10:00 ET
  • Tuesday: Nothing of note
  • Wednesday: Weekly MBA Mortgage Index (prior 0.2%) at 7:00 ET; November ADP Employment Change (Briefing.com consensus 20,000; prior 42,000) at 8:15 ET; September Import/Export Prices at 8:30 ET; September Industrial Production (Briefing.com consensus 0.1%; prior 0.1%) and Capacity Utilization (Briefing.com consensus 77.3%; prior 77.4%) at 9:15 ET; final November S&P Global U.S. Services PMI (prior 54.8) at 9:45 ET; November ISM Services (Briefing.com consensus 52.4%; prior 52.4%) at 10:00 ET; and weekly crude oil inventories (prior +2.77 mln) at 10:30 ET
  • Thursday: Weekly Initial Claims (Briefing.com consensus 220,000; prior 216,000), Continuing Claims (prior 1.960 mln), and October Trade Balance (Briefing.com consensus -$61.3 bln) at 8:30 ET; and weekly natural gas inventories (prior -11 bcf) at 10:30 ET
  • Friday: September Personal Income (Briefing.com consensus 0.4%; prior 0.4%), Personal Spending (Briefing.com consensus 0.4%; prior 0.6%), PCE Prices (Briefing.com consensus 0.3%; prior 0.3%), Core PCE Prices (Briefing.com consensus 0.3%; prior 0.2%), October Factory Orders (Briefing.com consensus -0.3%), and preliminary December University of Michigan Consumer Sentiment (Briefing.com consensus 52.0; prior 51.0) at 10:00 ET; and October Consumer Credit (Briefing.com consensus $9.8 bln; prior $13.1 bln) at 15:00 ET