Bond Market Update

30-Yr Yield Hits Three-Month High

• U.S. Treasuries retreated on Friday, sending the 30-yr yield to its highest level since early September while yields on 5s and 10s settled just below their November highs. The trading day started with slim losses and an early bounce attempt, but the market found resistance after most tenors made a brief appearance in the green toward the end of the opening hour of action. Treasuries were back at their starting levels just as the market received the Personal Income/Outlays report for September, which showed in-line Personal Income growth (0.4%) while Personal Spending growth (0.3%; Briefing.com consensus 0.4%) was below expectations. Core PCE Price growth (0.2%; Briefing.com consensus 0.3%) was also cooler than expected, reducing the yr/yr growth rate to 2.8% from 2.9% in August. Treasuries held their ground in immediate reaction to the data, but eventually continued to fresh lows with the belly leading the way. However, even with today's underperformance in the 5-yr note, its yield remained below its November high (3.767%) while the 30-yr yield rose past its 200-day moving average (4.770%) to its highest level in three months. Next week is shaping up for a quiet start on the data front, but the U.S. Treasury will sell $58 bln in 3-yr notes on Monday, followed by a $39 bln 10-yr note reopening on Tuesday, and a $22 bln 30-yr bond reopening on Thursday. Separately, the FOMC is expected to announce a 25-basis point rate cut on Wednesday. Crude oil gained under $1/bbl for the week while the U.S. Dollar Index spent the day near its flat line at 99.00 with its 50-day moving average (99.14) looming above. The Index slipped 0.5% for the week.
• Yield Check:
  • 2-yr: +3 bps to 3.56% (+7 bps this week)
  • 3-yr: +4 bps to 3.59% (+10 bps this week)
  • 5-yr: +3 bps to 3.72% (+12 bps this week)
  • 10-yr: +3 bps to 4.14% (+12 bps this week)
  • 30-yr: +3 bps to 4.79% (+12 bps this week)

• News:
  • The Atlanta Fed's GDPNow forecast for Q3 GDP was lowered to 3.5% from 3.8% in the previous estimate.
  • The Reserve Bank of India left its policy rate at 5.25%, as expected.
  • There was press speculation that a December hike from the Bank of Japan could be followed by more rate hikes next year.
  • State-owned banks in China are reportedly purchasing dollars at their fastest pace in 14 months to counter recent yuan strength.
  • French President Macron said that he is looking to eliminate trade restrictions between France and China.
  • German Chancellor Merz was able to convince his coalition members to support a pension bill that has faced heavy opposition. 
  • Eurozone's Q3 GDP expanded 0.3% qtr/qtr (expected 0.2%; last 0.1%), growing 1.4% yr/yr, as expected (last 1.5%). Q3 Employment increased by 0.2% qtr/qtr (expected 0.1%; last 0.1%), rising 0.6% yr/yr (expected 0.5%; last 0.7%).
  • Germany's October Factory Orders rose 1.5% m/m (expected 0.3%; last 2.0%).
  • U.K.'s November Halifax House Price Index was unchanged m/m (expected 0.2%; last 0.5%), rising 0.7% yr/yr (last 1.9%).
  • France's October Industrial Production was up 0.2% m/m (expected -0.1%; last 0.7%). October trade deficit reached EUR3.9 bln (expected deficit of EUR6.8 bln; last deficit of EUR6.4 bln). October Current Account surplus reached EUR1.10 bln (last deficit of EUR1.60 bln)
  • Italy's October Retail Sales rose 0.5% m/m (expected 0.4%; last -0.4%), increasing 1.3% yr/yr (last 0.7%).
  • Spain's October Industrial Production was up 1.2% yr/yr (last 1.5%).
  • Japan's October Household Spending was down 3.5% m/m (expected 0.7%; last -0.7%), falling 3.0% yr/yr (expected 1.1%; last 1.8%). October Leading Index rose to 110.0 from 108.6 (expected 109.3) and Coincident Indicator was up 0.5% m/m (expected 1.8%; last 1.7%).
  • South Korea's October Current Account surplus reached $6.81 bln (last surplus of $13.47 bln).
  • Singapore's October Retail Sales rose 2.3% m/m (last -1.7%), increasing 4.5% yr/yr (last 2.7%).
• Today's Data:
  • Personal income increased 0.4% month-over-month in September (Briefing.com consensus: 0.4%) following a 0.4% increase in August. Personal spending jumped 0.3% month-over-month (Briefing.com consensus: 0.4%) following a downwardly revised 0.5% increase (from 0.6%) in August. Real PCE, though, was flat. The PCE Price Index was up 0.3% month-over-month, as expected, and the core PCE Price Index, which excludes food and energy, was up 0.2% (Briefing.com consensus: 0.3%). On a year-over-year basis, the PCE Price Index was up 2.8%, versus 2.7% in August and 2.3% in April, and the core PCE Price Index was up 2.8%, versus 2.9% in August and 2.6% in April.
    • The key takeaway from the report is that it revealed a very sticky inflation component that remains well above the Fed's 2.0% inflation target. That likely won't prevent the Fed from cutting rates next week, but it will likely factor into a "hawkish cut," as the Fed implies it will be inclined to wait longer for the next rate cut.
  • The preliminary University of Michigan Consumer Sentiment reading for December increased to 53.3 (Briefing.com consensus: 52.0) from the final reading of 51.0 for November. In the same period a year ago, the index stood at 74.0.
    • The key takeaway from the report is its note that consumers' overall view can still be thought of as broadly somber, notwithstanding the month-over-month increase, due to the burden of high prices.
  • Consumer credit increased by $9.2 billion in October (Briefing.com consensus: $9.8 billion) following a downwardly revised $11.0 billion increase (from $13.0 billion) in September.
    • The key takeaway from the report is that the expansion in consumer credit in October was paced by revolving credit, which could be construed as a sign of consumers leaning more on credit cards to fund spending needs due to disposable income being pinched by higher prices (and missing paychecks for some during the government shutdown).
• Commodities:
  • WTI crude: +0.7% to $60.07/bbl
  • Gold: UNCH at $4243.50/ozt
  • Copper: +1.5% to $5.46/lb
• Currencies:
  • EUR/USD: UNCH at 1.1643
  • GBP/USD: UNCH at 1.3330
  • USD/CNH: UNCH at 7.0702
  • USD/JPY: +0.1% to 155.28
• The Week Ahead:
  • Monday: $58 bln 3-yr Treasury note auction results at 13:00 ET
  • Tuesday: Preliminary Q3 Productivity (Briefing.com consensus 3.5%; prior 3.3%) and Unit Labor Costs (Briefing.com consensus 0.9%; prior 1.0%) at 8:30 ET; September Job Openings (prior 7.227 mln) at 10:00 ET; and $39 bln 10-yr Treasury note reopening results at 13:00 ET
  • Wednesday: Weekly MBA Mortgage Index (prior -1.4%) at 7:00 ET; Q3 Employment Cost Index (Briefing.com consensus 0.9%; prior 0.9%) at 8:30 ET; weekly crude oil inventories (prior 0.57 mln) at 10:30 ET; December FOMC Rate Decision (Briefing.com consensus 3.50-3.75%; prior 3.75-4.00%) and November Treasury Budget (Briefing.com consensus -$223.4 bln; prior -$284.0 bln) at 14:00 ET
  • Thursday: November PPI (prior 0.3%), Core PPI (prior 0.1%), weekly Initial Claims (prior 191,000), Continuing Claims (prior 1.939 mln), and September Trade Balance (Briefing.com consensus -$61.7 bln; prior -$59.6 bln) at 8:30 ET; September Wholesale Inventories (Briefing.com consensus -0.2%; prior NA) at 10:00 ET; weekly natural gas inventories (prior -12 bcf) at 10:30 ET; and $22 bln 30-yr Treasury bond reopening results at 13:00 ET
  • Friday: Nothing of note