Bond Market Update

Longer Tenors Lead Midweek Slide

• U.S. Treasuries retreated on Wednesday, lifting yields to their highest levels since early October after a quiet first two sessions of the week. The midweek affair started in flat fashion, but selling interest began building after the open as the market received generally upbeat economic data that included renewed growth in the ADP Employment Change report (42,000; prior -29,000) and expansionary readings of the S&P Global U.S. Services PMI (54.6) and the ISM Services Index (52.4%) for October. The market also learned that the U.S. Treasury is considering a future increase to note and bond auction sizes, but today's release of the quarterly refunding statement did not call for any immediate changes. Treasuries reached lows in the late morning and remained at those levels into the close. The Supreme Court heard the Trump administration's argument for tariffs, but a decision is not expected to be made anytime soon. Crude oil fell below $60/bbl while the U.S. Dollar Index spent the day near its flat line at 100.23.
• Yield Check:
  • 2-yr: +5 bps to 3.63%
  • 3-yr: +6 bps to 3.65%
  • 5-yr: +6 bps to 3.77%
  • 10-yr: +7 bps to 4.16%
  • 30-yr: +7 bps to 4.74%

• News:
  • The Times shadow Monetary Policy Committee voted 5-4 in favor of the Bank of England keeping its bank rate at 4.00% ahead of tomorrow's official decision.
  • The European Central Bank's wage tracker forecast a 2.2% increase in Q3 wages after a 1.8% increase in Q2.
  • European Central Bank policymakers Nagel and Villeroy de Galhau cautioned against complacency on the part of policymakers.
  • China's October RatingDog Services PMI hit 52.6 (expected 52.5; last 52.9).
  • Japan's October Monetary Base was down 7.9% yr/yr (expected -4.8%; last -6.1%).
  • Hong Kong's October Manufacturing PMI hit 51.2 (last 50.4).
  • Singapore's September Retail Sales were down 1.4% m/m (last 0.7%) but up 2.8% yr/yr (last 5.3%).
  • Eurozone's October Services PMI hit 53.0 (expected 52.6; last 51.3). September PPI -0.1% m/m (expected 0.0%; last -0.4%); -0.2% yr/yr, as expected (last -0.6%).
  • Germany's September Factory Orders rose 1.1% m/m (expected 0.9%; last -0.4%). October Services PMI hit 54.6 (expected 54.5; last 51.5).
  • U.K.'s October Services PMI hit 52.3 (expected 51.1; last 50.1).
  • France's September Industrial Production rose 0.8% m/m (expected 0.1%; last -0.9%). October Services PMI hit 48.0 (expected 47.1; last 48.5).
  • Italy's October Services PMI hit 54.0 (expected 53.0; last 52.5). September Retail Sales were down 0.5% m/m (expected 0.2%; last -0.2%) but up 0.5% yr/yr (last 0.6%).
  • Spain's October Services PMI hit 56.6 (expected 54.8; last 54.3).
• Today's Data:
  • The ISM Services PMI increased to 52.4% in October (Briefing.com consensus 50.9%) from 50.0% in September. The dividing line between expansion and contraction is 50.0%, so the October reading reflects services sector activity accelerating from the prior month.
    • The key takeaway from the report is that it is not a data point that falls in favor of a rate cut in December. Business activity for the nation's largest sector accelerated in October, while the prices index (which measures prices paid for materials and services by services organizations) hit its highest level in three years.
  • The ADP Employment Change report pointed to the addition of 42,000 nonfarm payrolls in October (Briefing.com consensus 26,000) while the September reading was revised to -29,000 from -32,000.
  • S&P Global U.S. Services PMI hit 54.8 in the final reading for October, down from 55.2 in the preliminary reading but up from 54.2 in the final reading for September.
  • The weekly MBA Mortgage Index fell 1.9% to follow last week's 7.1% increase. Purchase Index fell 0.6%. Refinance Index fell 2.8%.
  • Weekly crude oil inventories increased by 5.20 mln barrels after decreasing by 6.86 mln barrels a week ago.
• Commodities:
  • WTI crude: -1.6% to $59.60/bbl
  • Gold: +0.8% to $3993.50/ozt
  • Copper: +0.6% to $4.98/lb
• Currencies:
  • EUR/USD: UNCH at 1.1489
  • GBP/USD: +0.2% to 1.3046
  • USD/CNH: UNCH at 7.1300
  • USD/JPY: +0.3% to 154.13
• The Day Ahead:
  • 8:30 ET: Preliminary Q3 Productivity (DELAYED; Briefing.com consensus 2.5%; prior 3.3%), Unit Labor Costs (DELAYED; Briefing.com consensus 0.8%; prior 1.0%), weekly Initial Claims (DELAYED; Briefing.com consensus 229,000; prior NA), and Continuing Claims (DELAYED; prior NA)
  • 10:00 ET: September Wholesale Inventories (DELAYED; Briefing.com consensus -0.2%; prior NA)
  • 10:30 ET: Weekly natural gas inventories (prior +74 bcf)