Bond Market Update

September Highs Offer Resistance Despite Rate Cut

• U.S. Treasuries endured some midweek volatility surrounding the expected FOMC rate cut announcement before ending the session at their lowest levels of the day. Treasuries showed some early strength in longer tenors, but the market spent the morning in a slow retreat off the day's starting levels. That retreat produced fresh lows across the curve in the early afternoon, but the entire complex charged past the day's opening levels in reaction to the FOMC Statement, which called for a 25-basis point rate cut. While the Fed delivered the expected rate cut, the economic projections that were also released today did not show a clear rush to more easing. Instead, the projections showed that 2025 GDP is expected between 1.4% and 1.7%, up from the previous forecast for growth between 1.2% and 1.5%. PCE inflation is expected between 2.9% and 3.0% for the year while the previous forecast called for an increase between 2.8% and 3.2%. Furthermore, nine out of 19 policymakers expect just one more rate cut this year while ten see two more cuts, so it remains unclear if the slight majority gets its wish. The post-FOMC jump pressured yields on 10s and 30s to fresh lows for the month while the 2-yr yield stopped just above its September low, but the entire complex faced late pressure that left 5s and longer tenors on their lows. Crude oil found resistance near its 50-day moving average (64.97) while the U.S. Dollar Index rose 0.3% to 96.97.
• Yield Check:
  • 2-yr: +4 bps to 3.55%
  • 3-yr: +6 bps to 3.53%
  • 5-yr: +7 bps to 3.65%
  • 10-yr: +5 bps to 4.08%
  • 30-yr: +3 bps to 4.68%

• News:
  • The Atlanta Fed's GDPNow forecast for Q3 GDP was lowered to 3.3% from 3.4% in the previous estimate.
  • The Bank of Canada lowered its policy rate by 25 basis points to 2.50%, as expected.
  • China's government announced a series of measures aimed at increasing consumption through promotional activities.
  • The U.K.'s budget office is expected to reduce its productivity growth estimates ahead of the fall budget.
  • Germany is expected to announce that its borrowing in Q4 will be increased by EUR15 bln.
  • Japan's August trade deficit reached JPY242.5 bln (expected deficit of JPY513.6 bln; prior deficit of JPY118.4 bln) as imports fell 5.2% yr/yr (expected -4.2%; last -7.4%) and exports dropped 0.1% yr/yr (expected -1.9%; last -2.6%).
  • Singapore's August trade surplus reached $5.078 bln (last surplus of $6.351 bln) as non-oil exports fell 8.9% m/m (last -6.0%), dropping 11.3% yr/yr (expected 1.0%; last -4.7%). Q2 Unemployment Rate dipped to 2.0% from 2.1% (expected 2.1%).
  • Australia's August MI Leading Index was down 0.1% m/m (last 0.1%).
  • New Zealand's Q3 Westpac Consumer Sentiment fell to 90.9 from 91.2. Q2 Current Account deficit hit 3.7% of GDP (last 5.7% of GDP).
  • Eurozone's August CPI was up 0.1% m/m (expected 0.2%; last 0.0%), rising 2.0% yr/yr (expected 2.1%; last 2.0%). August Core CPI was up 0.3% m/m, as expected (last -0.2%), rising 2.3% yr/yr, as expected (last 2.3%).
  • U.K.'s August CPI was up 0.3% m/m, as expected (last 0.1%), rising 3.8% yr/yr, as expected (last 3.8%). August Core CPI was up 0.3% m/m (last 0.2%), rising 3.6% yr/yr (expected 3.7%; last 3.8%). August RPI was up 0.4% m/m (expected 0.5%: last 0.4%), rising 4.6% yr/yr (expected 4.7%; last 4.8%).
• Today's Data:
  • Total housing starts declined 8.5% month-over-month in August to a seasonally adjusted annual rate of 1.307 million (Briefing.com consensus: 1.375 million) from a revised 1.429 million (from 1.428 million) in July. Building permits declined 3.7% month-over-month to a seasonally adjusted annual rate of 1.312 million (Briefing.com consensus: 1.370 million) from an unrevised 1.362 million in July.
    • The key takeaway from the report is the weakness in single-unit starts (-7.0% month-over-month) and single-unit permits (-2.2%), which is a reflection of affordability constraints for builders and prospective homeowners alike. Strikingly, single-unit starts in the South—the nation's largest homebuilding region—plunged 17.0% in August.
  • Weekly crude oil inventories decreased by 9.29 million barrels after increasing by 3.94 million barrels a week ago.
  • The weekly MBA Mortgage Index jumped 29.7% to follow last week's 9.2% increase. The Refinance Index spiked 57.7% while the Purchase Index was up 2.9%.
• Commodities:
  • WTI crude: -0.8% to $64.06/bbl
  • Gold: -0.2% to $3718.00/ozt
  • Copper: -1.3% to $4.63/lb
• Currencies:
  • EUR/USD: -0.2% to 1.1843
  • GBP/USD: UNCH at 1.3650
  • USD/CNH: -0.1% to 7.0972
  • USD/JPY: +0.2% to 146.63
• The Day Ahead:
  • 8:30 ET: 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)
  • 10:00 ET: August Leading Indicators (Briefing.com consensus -0.1%; prior -0.1%)
  • 10:30 ET: Weekly natural gas inventories (prior +71 bcf)
  • 16:00 ET: July Net Long-Term TIC Flows (prior $150.8 bln)