Bond Market Update

A Decision Point

• U.S. Treasuries digested a large batch of economic data today that featured better-than-expected retail sales and rising import and export prices in August, yet none of it deterred the market's thinking that the Fed will be cutting the target range for the fed funds rate by 25 basis points to 4.00-4.25% on Wednesday. Today's action saw range-bound trading in front of Wednesday's FOMC decision, as buyers and sellers held their fire for the most part. Stephen Miran, now Fed Governor Miran, will be casting a vote at the FOMC meeting along with Fed Governor Cook. There was a slightly positive bias that kept yields from rising across the curve. A solid 20-yr bond auction lent support in a session that saw the dollar weaken against other major currencies. The U.S. Dollar Index was down 0.7% to 96.64.
• Yield Check:
  • 2-yr: -2 bps to 3.51%
  • 3-yr: -2 bps to 3.48%
  • 5-yr: -1 bp to 3.59%
  • 10-yr: unch at 4.03%
  • 30-yr: -1 bp to 4.65%

• News:
  • The Senate confirmed Stephen Miran to Fed Board and he will attend this week's meeting. Appeals Court rejected plan to remove Lisa Cook from Fed Board. WSJ
  • President Trump says he has a deal on TikTok and he will finalize on Friday when he calls President Xi; says he will announce the company involved when it is final; says he wants the Fed to be independent
  • Treasury Secretary Bessent is confident the Supreme Court will uphold President Trump's tariff authority.
  • Treasury Secretary Bessent tells CNBC the plan right now is for Stephen Miran to come back to CEA after the initial term, and then another person will be appointed to the Fed Board; says he had a great interview session with James Bullard
  • House Appropriations Committee confirms the release of the Continuing Appropriations and Extensions Act, 2026; extends government funding until November 21
  • President Trump begins his UK state visit this evening
  • White House extends delay of TikTok ban until December 18, 2025
  • Atlanta Fed raises Q3 GDP forecast to +3.4% from +3.1% prior
  • ECB member Kazaks said there is no reason to cut rates further right now, a view that is helping to underpin the euro
  • The BOE is expected to leave its key policy rate unchanged at 4.00% at Thursday's meeting.
  • Today marked the implementation of the reduced 15% tariff rate (from 27.5%) on imports of Japanese vehicles and auto parts to the U.S.
  • The Bank of Japan meets Friday and is expected to hold its key policy rate at 0.50%.
  • Eurozone's September ZEW Economic Sentiment 26.1 (expected 20.3; last 25.1)
• Today's Data:
  • Total retail sales increased 0.6% month-over-month in August (Briefing.com consensus: 0.3%) following an upwardly revised 0.6% (from 0.5%) in July. Excluding autos, retail sales jumped 0.7% month-over-month (Briefing.com consensus: 0.3%) following an upwardly revised 0.4% increase (from 0.3%) in July.
    • The key takeaway from the report is that it reflects a consumer still spending at a good clip. The retail sales data are not adjusted for price changes. Granted, higher prices accounted for some of the increased sales activity in August, but they didn't account for all of it.
  • Import prices increased 0.3% month-over-month in August following a downwardly revised 0.2% (from 0.4%) in July. Excluding fuel, import prices were up 0.4% month-over-month following a revised unchanged (from 0.3%) in July. Export prices rose 0.3% month-over-month following an upwardly revised 0.3% (from 0.1%) in July. Excluding agricultural products, export prices were also up 0.3% following an upwardly revised 0.3% (from 0.1%) in July.
    • The key takeaway from the report, or really, the key focal point, is the 0.4% increase in nonfuel import prices. That increase will continue to stoke concerns about tariff-driven inflation pressures.
  • Industrial production increased 0.1% month-over-month in August (Briefing.com consensus 0.0%) following a downwardly revised 0.4% decline (from -0.1%) in July. The capacity utilization rate was 77.4% (Briefing.com consensus 77.4%), following a downwardly revised 77.4% (from 77.5%) in July. Total industrial production increased 0.9% yr/yr, while the capacity utilization rate was 2.2 percentage points below its long-run average.
    • The key takeaway from the report is that industrial production activity was driven in August by the production of motor vehicles and parts.
  • July Business Inventories (Actual 0.2%; Briefing.com consensus 0.2%; prior revised to 0.2% from 0.0%).
  • September NAHB Housing Market Index (Actual 32; Briefing.com consensus 33; prior 32).
  • The 20-yr bond reopening was met with solid dollar demand, evidenced by the 2.74 bid-to-cover ratio that exceeded the prior 12-auction average of 2.58.
• Commodities:
  • WTI crude: +2.0% to $64.56/bbl
  • Gold: +0.2% to $3725.30/ozt
  • Copper: -0.6% to $4.69/lb
• Currencies:
  • EUR/USD: +0.9% to 1.1864
  • GBP/USD: +0.4% to 1.3657
  • USD/CNH: -0.2% to 7.1038
  • USD/JPY: -0.7% to 146.34
• The Day Ahead:
  • 07:00 ET: MBA Mortgage Applications Index (prior 9.2%)
  • 08:30 ET: August Housing Starts (Briefing.com consensus: 1375K; prior 1428K) and Building Permits (Briefing.com consensus: 1370K; prior 1362K)
  • 10:30 ET: EIA Crude Oil Inventories (prior +3.94M)
  • 14:00 ET: FOMC Rate Decision and Summary of Economic Projections
  • 14:30 ET: Fed Chair Powell Press Conference