Bond Market Update

Tuesday Bounce Extended

• U.S. Treasuries extended their rebound from Tuesday, returning most tenors to their opening levels from Monday. Treasuries essentially finished the midweek session where they started after recovering from some intraday weakness. The trading day began with solid gains in 10s and shorter tenors while the long bond underperformed but also started in the green. The higher open followed a night that featured the release of expansionary final November Services PMI readings from major economies with most coming in ahead of expectations. That trend was maintained during the U.S. session with the ISM Services Index for November (52.6%; Briefing.com consensus 52.4%) showing a stronger-than-expected acceleration in activity. The market received several other reports, including a contractionary reading of the ADP Employment Change report (-32,000; Briefing.com consensus 20,000), but showed no significant reaction to today's data. Crude oil recovered some of yesterday's loss while the U.S. Dollar Index fell 0.5% to 98.85, sliding back below its 50-day moving average (99.11).
• Yield Check:
  • 2-yr: -3 bps to 3.49%
  • 3-yr: -3 bps to 3.50%
  • 5-yr: -4 bps to 3.62%
  • 10-yr: -3 bps to 4.06%
  • 30-yr: -2 bps to 4.73%

• News:
  • The Chinese government is reportedly looking for ways to boost demand for tourism and aviation.
  • Reserve Bank of Australia Governor Bullock said that inflation has surprised to the upside and the economy could be running ahead of potential.
  • The EU Council has agreed on a plan to end imports of Russian gas by 2027.
  • Germany's Economy Minister said that economic growth in 2026 and 2027 is possible if investments are made in infrastructure.
  • China's November RatingDog Services PMI hit 52.1, as expected (last 52.6).
  • Japan's November Services PMI hit 53.2 (expected 53.1; last 53.1).
  • South Korea's Q3 GDP expanded 1.3% qtr/qtr (expected 1.2%; last 0.7%), growing 1.8% yr/yr (expected 1.7%; last 0.6%).
  • India's November Services PMI hit 59.8 (expected 59.5; last 58.9).
  • Hong Kong's November Manufacturing PMI hit 52.9 (last 51.2).
  • Australia's Q3 GDP expanded 0.4% qtr/qtr (expected 0.7%; last 0.7%), growing 2.1% yr/yr (expected 2.2%; last 2.0%). November Services PMI hit 52.8 (expected 52.7; last 52.5).
  • Eurozone's November Services PMI hit 53.6 (expected 53.1; last 53.0). October PPI was up 0.1% m/m, as expected (last -0.1%) but down 0.5% yr/yr (expected -0.4%; last -0.2%).
  • Germany's November Services PMI hit 53.1 (expected 52.7; last 54.6).
  • U.K.'s November Services PMI hit 51.3 (expected 50.5; last 52.3).
  • France's November Services PMI hit 51.4 (expected 50.8; last 48.0).
  • Italy's November Services PMI hit 55.0 (expected 53.9; last 54.0).
  • Spain's November Services PMI hit 55.6 (expected 56.3; last 56.6).
  • Swiss November CPI was down 0.2% m/m (expected -0.1%; last -0.3%).
• Today's Data:
  • The ISM Services PMI increased to 52.6% in November (Briefing.com consensus 52.4%) from 52.4% in October. The dividing line between expansion and contraction is 50.0%, so the November reading reflects services sector activity accelerating slightly from the prior month.
    • The key takeaway from the report is that activity in the services sector remains in expansion mode, yet that expansion is somewhat tepid, evidenced by this low November reading that is 10 percentage points less than the 12-month average since February 2022, when it stood at 62.6%.
  • The November ADP Employment Change Report indicated private-sector employment shed 32,000 jobs (Briefing.com consensus: 20,000) following an upwardly revised 47,000 increase (from 42,000) in October, with both the goods-producing (-19,000) and service-providing (-13,000) sectors losing jobs.
    • The key takeaway from the report was the understanding that small establishments (-120,000) accounted for the entirety of the November decline, likely reflecting the headwinds many are facing from higher costs and more guarded spending by low- and middle-income consumers.
  • Industrial production increased 0.1% month-over-month in September (Briefing.com consensus 0.1%) following a downwardly revised 0.3% decline (from 0.1%) in August. The capacity utilization rate was 75.9% (Briefing.com consensus 77.3%) following a downwardly revised 75.9% (from 77.4%) in August (note: annual revisions were released November 24). Total industrial production increased 1.6% yr/yr, while the capacity utilization rate was 3.6 percentage points below its long-run average.
    • The key takeaway from the report is the downshift in the capacity utilization rate, which implies there is slack in the industrial sector that should translate into reduced inflation pressure.
  • The weekly MBA Mortgage Index fell 1.4% to follow last week's 0.2% increase. The Purchase Index rose 2.5% while the Refinance Index was down 4.5%.
  • The S&P Global U.S. Services PMI hit 54.1 in the final reading for November, down from 55.0 in the preliminary reading and down from October's final reading of 54.8.
  • The September Import-Export Price Index didn't dissuade from the rate-cut optimism either. Both import and export prices were unchanged month-over-month. Nonfuel import prices were up 0.2%, but notably were up just 0.8% year-over-year.
  • Weekly crude oil inventories increased by 574,000 barrels after increasing by 2.77 mln barrels a week ago.
• Commodities:
  • WTI crude: +0.5% to $58.95/bbl
  • Gold: +0.3% to $4232.30/ozt
  • Copper: +2.9% to $5.39/lb
• Currencies:
  • EUR/USD: +0.4% to 1.1673
  • GBP/USD: +1.1% to 1.3351
  • USD/CNH: -0.1% to 7.0567
  • USD/JPY: -0.5% to 155.15
• The Day Ahead:
  • 8:30 ET: 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)
  • 10:30 ET: Weekly natural gas inventories (prior -11 bcf)