Bond Market Update

Treasuries Slide Amid Focus on Potential BoJ Hike

• U.S. Treasuries began December on a lower note, sliding alongside other sovereign debt amid solidifying expectations for a rate hike from the Bank of Japan on December 19. Treasuries recorded roughly half of their losses at the cash start after the overnight slide in Treasury futures and other sovereign debt. Japanese debt was at the forefront of the selling with yields on nearly all tenors hitting fresh highs for the year. The continued rise in yields in a country known for its propensity to save is putting pressure on investors to repatriate a growing share of their foreign investments, resulting in pressure on other global assets. Treasuries added to their starting losses during the first couple hours of action, staging a shallow bounce after today's economic data included an expansionary final reading of the S&P Global U.S. Manufacturing PMI (52.2; prior 52.5), which contrasted with the more impactful ISM Manufacturing Index (48.2%; Briefing.com consensus 49.0%; prior 48.7%) that showed a deepening contraction in manufacturing activity. The brief bounce was followed by an afternoon slip to fresh lows, leaving the 5-yr yield just above its 50-day moving average (3.670%) while yields on 10s and 30s also settled above 50-day moving averages of their own. Crude oil recovered its loss from Friday afternoon, but still ended the pit session with a slim loss, while the U.S. Dollar Index slipped below its 50-day moving average (99.05) in morning trade, but eventually returned above that level, reclaiming its loss.
• Yield Check:
  • 2-yr: +5 bps to 3.54%
  • 3-yr: +6 bps to 3.55%
  • 5-yr: +7 bps to 3.67%
  • 10-yr: +8 bps to 4.10%
  • 30-yr: +8 bps to 4.74%

• News:
  • President Trump will meet with his military and national security advisers this evening to discuss Venezuela.
  • The Atlanta Fed's GDPNow forecast for Q4 GDP growth remained at 3.9% in the latest estimate.
  • China's November Manufacturing PMI hit 49.2, as expected (last 49.0) and Non-Manufacturing PMI hit 49.5 (expected 50.0; last 50.1). November Caixin Manufacturing PMI hit 49.9 (expected 50.5; last 50.6).
  • Japan's November Manufacturing PMI hit 48.7 (expected 48.8; last 48.8). Q3 Capital Spending was up 2.9% yr/yr (expected 5.9%; last 7.6%).
  • South Korea's November trade surplus reached $9.74 bln (expected surplus of $8.40 bln; last surplus of $6.00 bln) as imports grew 1.2% yr/yr (expected 3.4%; last -1.5%) and exports rose 8.4% yr/yr (expected 5.7%; last 3.5%). November Manufacturing PMI hit 49.4 (last 49.4).
  • Australia's final November Manufacturing PMI hit 51.6, as expected (last 51.6). November MI Inflation Gauge was up 0.3% m/m (last 0.3%). Q3 Business Inventories fell 0.9% qtr/qtr (last 0.1%). Q3 Gross Operating Profits were unchanged qtr/qtr (expected 1.7%; last -2.6%). November ANZ Job Advertisements were down 0.8% m/m (last -1.9%).
  • New Zealand's October Building Consents fell 0.9% m/m (last 7.3%).
  • Eurozone's November Manufacturing PMI hit 49.6 (expected 49.7; last 50.0).
  • Germany's November Manufacturing PMI hit 48.2 (expected 48.4; last 49.6).
  • U.K.'s November Manufacturing PMI hit 50.2, as expected (last 50.2). October Mortgage Approvals reached 65,020 (expected 64,000; last 65,650) and October Net Lending to Individuals reached GBP5.40 bln (expected GBP6.40 bln; last GBP6.60 bln).
  • France's November Manufacturing PMI hit 47.8, as expected (last 48.8).
  • Italy's November Manufacturing PMI hit 50.6 (expected 50.1; last 49.9).
  • Spain's November Manufacturing PMI hit 51.5 (expected 52.3; last 52.1).
  • Swiss October Retail Sales rose 2.7% yr/yr (expected 1.2%; last 1.8%).
• Today's Data:
  • The November ISM Manufacturing Index checked in at 48.2% for November (Briefing.com consensus: 49.0%), down from 48.7% in October. The dividing line between expansion and contraction is 50.0%, so the November figure, which is the ninth straight month below 50.0%, suggests manufacturing activity contracted at a faster pace than the prior month.
    • The key takeaway from the report is that the manufacturing sector resembled a sector in a state of stagflation in November, punctuated by a faster pace of contraction, rising prices, and weakening employment.
  • The S&P Global U.S. Manufacturing PMI hit 52.2 in the final reading for November, down from 52.5 in October.
• Commodities:
  • WTI crude: -0.2% to $59.32/bbl
  • Gold: +0.5% to $4274.80/ozt
  • Copper: +0.6% to $5.30/lb
• Currencies:
  • EUR/USD: +0.1% to 1.1609
  • GBP/USD: -0.1% to 1.3213
  • USD/CNH: +0.1% to 7.0722
  • USD/JPY: -0.4% to 155.47
• No Data on Tomorrow's Schedule