Bond Market Update

Shorter Tenors Trim September Gains

• U.S. Treasuries retreated on Friday with longer tenors leading the slide, though even with today's underperformance, 10s and 30s added to their gains from the first week of September while 5s and shorter tenors finished the week in negative territory. The trading day started in the red after a night that featured fresh record highs in Japan's Nikkei and South Korea's Kospi. The market received a sizable batch of data with China reporting a rebound in August social financing while a flat July GDP reading from the U.K. invited concerns about stagflation taking hold. The data flow slowed during the U.S. session, as the market only received the preliminary September Consumer Sentiment Survey from the University of Michigan (55.4; Briefing.com consensus 59.2). The survey showed weakening sentiment for the second month in a row with five-year inflation expectations jumping to 3.9% from 3.5% in August. Treasuries added to their initial losses in morning trade, reaching lows around 11:30 ET. The rest of the day saw a slow rebound off those levels with 5s and shorter tenors returning to their opening levels while longer tenors finished a bit behind, but the long bond still logged a strong gain for the week. Crude oil finished the week with a slim gain of under $1/bbl while the U.S. Dollar Index finished flat at 97.56, shedding 0.2% for the week.
• Yield Check:
  • 2-yr: +3 bps to 3.56% (+5 bps this week)
  • 3-yr: +4 bps to 3.53% (+5 bps this week)
  • 5-yr: +5 bps to 3.63% (+5 bps this week)
  • 10-yr: +5 bps to 4.06% (-3 bps this week)
  • 30-yr: +3 bps to 4.68% (-10 bps this week)

• News:
  • The U.S. and Japan reaffirmed their commitment to allowing the market to determine exchange rates.
  • The Chinese government will assist local governments with more than $1 trillion in bills.
  • Securities Times expects the People's Bank of China to resume buying bonds in Q4.
  • European Central Bank policymaker Patsalides cautioned that the next policy change could be a rate hike, and that there is no current need for action unless there is a shock, while other ECB policymakers hinted at the potential for another cut by the end of the year.
  • China's August New Loans reached CNY590.0 bln (expected CNY700.0 bln; last -CNY50.0 bln), August Outstanding Loans grew 6.8% yr/yr (expected 6.9%; last 6.9%), and August total social financing reached CNY2.57 trln (expected CNY2.46 trln; last CNY1.13 trln).
  • Japan's July Industrial Production was down 1.2% m/m (expected -1.6%; last 2.1%) and Capacity Utilization was down 1.1% m/m (last -1.8%).
  • India's August CPI was up 2.07% yr/yr (expected 2.10%; last 1.61%).
  • New Zealand's August Business PMI hit 49.9 (last 52.8). August Electronic Card Retail Sales rose 0.7% m/m (last 0.2%), increasing 0.9% yr/yr (last 1.7%).
  • Germany's August CPI was up 0.1% m/m, as expected (last 0.3%), rising 2.2% yr/yr, as expected (last 2.0%).
  • U.K.'s July GDP was unchanged m/m, as expected (last 0.4%), rising 1.4% yr/yr (expected 1.5%; last 1.4%).
  • France's August CPI was up 0.4% m/m, as expected (last 0.2%), rising 0.9% yr/yr, as expected (last 1.0%).
  • Italy's Q2 Unemployment Rate rose to 6.3% from 6.1% (expected 6.1%).
  • Spain's August CPI was unchanged m/m, as expected (last -0.1%), rising 2.7% yr/yr, as expected (last 2.7%). August Core CPI was up 2.4% yr/yr, as expected (last 2.3%).
• Today's Data:
  • The preliminary University of Michigan Consumer Sentiment reading for September checked in at 55.4 (Briefing.com consensus: 59.2) versus the final reading of 58.2 for August. In the same period a year ago, the index stood at 70.1.
    • The key takeaway from the report is that the pullback in consumer sentiment was paced by fading economic views among lower-income and middle-income consumers.
• Commodities:
  • WTI crude: +0.5% to $62.67/bbl
  • Gold: +0.4% to $3686.50/ozt
  • Copper: -0.2% to $4.65/lb
• Currencies:
  • EUR/USD: +0.1% to 1.1737
  • GBP/USD: -0.1% to 1.3567
  • USD/CNH: +0.1% to 7.1240
  • USD/JPY: +0.2% to 147.50
• The Week Ahead:
  • Monday: September Empire State Manufacturing Survey (Briefing.com consensus 3.0; prior 11.9) at 8:30 ET
  • Tuesday: August Retail Sales (Briefing.com consensus 0.3%; prior 0.5%), Retail Sales ex-auto (Briefing.com consensus 0.3%; prior 0.3%), August Import Prices (prior 0.4%), Import Prices ex-oil (prior 0.3%), Export Prices (prior 0.1%), and Export Prices ex-agriculture (prior 0.1%) at 8:30 ET; August Industrial Production (Briefing.com consensus 0.0%; prior -0.1%) and Capacity Utilization (Briefing.com consensus 77.4%; prior 77.5%) at 9:15 ET; July Business Inventories (Briefing.com consensus 0.2%; prior 0.0%) and September NAHB Housing Market Index (Briefing.com consensus 33; prior 32) at 10:00 ET; and $13 bln 20-yr Treasury bond reopening results at 13:00 ET
  • Wednesday: Weekly MBA Mortgage Index (prior 9.2%) at 7:00 ET; August Housing Starts (Briefing.com consensus 1.375 mln; prior 1.428 mln) and Building Permits (Briefing.com consensus 1.370 mln; prior 1.362 mln) at 8:30 ET; weekly crude oil inventories (prior +3.94 mln) at 10:30 ET; and September FOMC Rate Decision (Briefing.com consensus 4.00-4.25%; prior 4.25-4.50%)
  • Thursday: September Philadelphia Fed Survey (Briefing.com consensus 3.0; prior -0.3), weekly Initial Claims (Briefing.com consensus 245,000; prior 263,000), and Continuing Claims (prior 1.939 mln) at 8:30 ET; August Leading Indicators (Briefing.com consensus -0.1%; prior -0.1%) at 10:00 ET; weekly natural gas inventories (prior +71 bcf) at 10:30 ET; and July Net Long-Term TIC Flows (prior $150.8 bln)
  • Friday: Nothing of note