Bond Market Update

Post-FOMC Slide Continues

• U.S. Treasuries ended the week with losses across the curve, deepening their post-FOMC retreat with longer tenors remaining at the forefront of the selling. The Friday session was fairly quiet as the market had no domestic economic data to digest while the overseas news flow was also limited. The Bank of Japan did not announce a rate hike this time around while expectations for a rate cut from the Bank of England receded after a solid Retail Sales report from the U.K. Treasuries tried to recover their initial losses during the first couple hours of trade, but they found resistance shortly after the 2-yr note inched into positive territory while longer tenors never made it that far. Midday trade saw some renewed selling that lifted the 30-yr yield right above its morning high, followed by a sideways drift into the close. Today's selling lifted yields back to levels seen at the end of the first week of September. In Washington, the House of Representatives passed a continuing resolution to fund the government through November 21, but the bill failed in the Senate, leaving the door open for a potential government shutdown. Crude oil turned slightly negative for the week while the U.S. Dollar Index rose 0.3% to 97.63, ending the week little changed.
• Yield Check:
  • 2-yr: +1 bp to 3.58% (+2 bps this week)
  • 3-yr: +2 bps to 3.57% (+4 bps this week)
  • 5-yr: +3 bps to 3.69% (+6 bps this week)
  • 10-yr: +4 bps to 4.14% (+8 bps this week)
  • 30-yr: +4 bps to 4.76% (+8 bps this week)

• News:
  • Minneapolis Fed President (non-voter) Kashkari spoke in favor of two more rate cuts before the end of the year.
  • The Bank of Japan announced a plan to sell its ETF holdings at JPY330 bln per year while J-REITS will be sold at a pace of JPY5.5 bln per year.
  • Softbank is reportedly reducing the headcount in its Vision Fund by up to 20%.
  • Spain's economy minister called on the EU to "engage" China to reduce the EU's trade deficit with China.
  • European Central Bank policymaker Centeno said that inflation risks remain tilted to the downside and that inflation below 2.0% can't be tolerated for too long.
  • UBS, Morgan Stanley, and Bank of America no longer expect the Bank of England to cut its bank rate before the end of the year.
  • Japan's August National CPI was up 0.1% m/m (last 0.1%), rising 2.7% yr/yr (last 3.1%). National Core CPI was up 2.7% yr/yr, as expected (last 3.1%).
  • New Zealand's August trade deficit reached NZD1.19 bln (expected deficit of NZD746 mln; last deficit of NZD716 mln). August Credit Card Spending was up 3.5% yr/yr (last 1.6%).
  • Germany's August PPI was down 0.5% m/m (expected -0.1%; last -0.1%), falling 2.2% yr/yr (expected -1.8%; last -1.5%).
  • U.K.'s August Retail Sales rose 0.5% m/m (expected 0.4%; last 0.5%), increasing 0.7% yr/yr (expected 0.6%; last 0.8%). August Core Retail Sales rose 0.8% m/m (expected 0.3%; last 0.4%), increasing 1.2% yr/yr (expected 0.8%; last 1.0%). August Public Sector Net Borrowing reached GBP18.00 bln (expected GBP12.80 bln; last GBP1.05 bln).
  • France's September Business Survey fell to 96 from 97, as expected.
• Commodities:
  • WTI crude: -1.4% to $62.41/bbl
  • Gold: +0.8% to $3706.00/ozt
  • Copper: +0.7% to $4.63/lb
• Currencies:
  • EUR/USD: -0.3% to 1.1748
  • GBP/USD: -0.6% to 1.3469
  • USD/CNH: +0.2% to 7.1191
  • USD/JPY: UNCH at 147.97
• The Week Ahead:
  • Monday: Nothing of note
  • Tuesday: Q2 Current Account Balance (Briefing.com consensus -$302.1 bln; prior -$450.2 bln) at 8:30 ET; flash September S&P Global U.S. Manufacturing PMI (prior 53.0) and flash September S&P Global U.S. Services PMI (prior 54.5) at 9:45 ET; and $69 bln 2-yr Treasury note auction results at 13:00 ET
  • Wednesday: Weekly MBA Mortgage Index (prior 29.7%) at 7:00 ET; August New Home Sales (Briefing.com consensus 650,000; prior 652,000) at 10:00 ET; weekly crude oil inventories (prior -9.29 mln) at 10:30 ET; and $70 bln 5-yr Treasury note auction results at 13:00 ET
  • Thursday: Q2 GDP -- third estimate (Briefing.com consensus 3.3%; prior 3.3%), Q2 GDP Deflator -- third estimate (Briefing.com consensus 2.0%; prior 2.0%), August Durable Orders (Briefing.com consensus -0.5%; prior -2.8%), Durable Orders ex-transport (Briefing.com consensus -0.1%; prior 1.1%), weekly Initial Claims (Briefing.com consensus 238,000; prior 231,000), Continuing Claims (prior 1.920 mln), August advance International Goods Trade Balance (prior -$103.6 bln), August advance Retail Inventories (prior 0.2%), and August advance Wholesale Inventories (prior 0.2%) at 8:30 ET; August Existing Home Sales (Briefing.com consensus 3.99 mln; prior 4.01 mln) at 10:00 ET; weekly crude oil inventories (prior +90 bcf) at 10:30 ET; and $44 bln 7-yr Treasury note auction results at 13:00 ET
  • Friday: August Personal Income (Briefing.com consensus 0.3%; prior 0.4%), Personal Spending (Briefing.com consensus 0.4%; prior 0.5%), PCE Prices (Briefing.com consensus 0.3%; prior 0.2%), and Core PCE Prices (Briefing.com consensus 0.2%; prior 0.3%) at 8:30 ET; and final September University of Michigan Consumer Sentiment (Briefing.com consensus 55.4; prior 55.4) at 10:00 ET