Bond Market Update

Treasuries Firm as Stocks Sink

• U.S. Treasuries finished with modest gains across the curve that pushed yields slightly lower from Monday's settlement. The gains were logged in the face of a declining stock market that was pressured by weakness in the mega-cap stocks and an acknowledgment by Fed Chair Powell that equity valuations are fairly highly valued. That assessment occurred alongside his view that the policy rate is still modestly restrictive. Separately, the 2-yr note auction was met with okay (not great) demand; meanwhile, the preliminary September S&P Global US Manufacturing and Services PMI readings indicated both sectors of the economy were operating in an expansion mode, albeit at a somewhat slower pace than the prior month.
• Yield Check:
  • 2-yr: -1 bp to 3.59%
  • 3-yr: -1 bp to 3.57%
  • 5-yr: -2 bps to 3.68%
  • 10-yr: -2 bps to 4.12%
  • 30-yr: -2 bps to 4.74%

• News:
  • President Trump at UN General Assembly says if Russia doesn't agree to stop war in Ukraine, he will impose new "powerful round" of tariffs; says EU countries should also impose tariffs; he was critical of China, India, and EU for purchasing Russian oil
  • President Trump says "Ukraine, with the support of the European Union, is in a position to fight and WIN all of Ukraine back in its original form; says "We will continue to supply weapons to NATO"
  • Fed Chair Powell (FOMC voter) says policy rate still modestly restrictive and acknowledges equity valuations are fairly highly valued
  • Fed Vice Chair Bowman (FOMC voter) thinks the Fed should focus on risks to its employment mandate and preemptively stabilize and support labor market conditions
  • Chicago Fed President Austan Goolsbee (FOMC voter) highlighted a gradual, conditional path for rate cuts if stagflation risks ease
  • President Trump shoots down meeting Democratic leadership this week ahead of the government funding deadline
  • September Manufacturing PMIs for Germany, France, the UK, and the eurozone were all in the sub-50 contraction zone, and activity was weaker than the prior month in all cases. Services PMI readings for the eurozone and Germany, however, were above 50 and signaled an acceleration from the prior month.
  • PBOC Governor Pan said policy is appropriately loose and that there are no systemic financial risks
  • OECD raises 2025 global growth forecast to 3.2% from 2.9%
  • Sweden's Riksbank cut its policy rate by 25 basis points to 1.75%, saying the rate will likely remain there "for some time to come" if the outlook for inflation and economic activity holds
  • Several contenders for Japan's prime minister position spoke of the need to maintain fiscal discipline
  • Eurozone's September HCOB Manufacturing PMI 49.5 (expected 50.7; prior 50.7) and HCOB Services PMI 51.4 (expected 50.6; prior 50.5)
• Today's Data:
  • The Q2 Current Account Balance showed a stark narrowing in the deficit to $251.3 billion from an upwardly revised deficit of $439.8 billion (from -$450.2 billion) in Q1.
  • The preliminary September S&P Global US Manufacturing PMI slipped to 52.0 from the final reading of 53.0 for August. The preliminary S&P Global US Services PMI dipped to 53.9 from the final reading of 54.5 for August. Both gauges remain above the 50.0 demarcation line for expansion and contraction, although activity in both cases decelerated slightly from August.
  • The 2-yr note auction saw the high yield of 3.571% stop nearly on the screws of the when-issued yield of 3.572%. Dollar demand was a bit soft relative to the prior 12-auction average, and indirect bids were weaker than the prior 12-auction average.
• Commodities:
  • WTI crude: +1.9% to $63.44/bbl
  • Gold: +1.0% to $3813.80/ozt
  • Copper: unch at $4.64/lb
• Currencies:
  • EUR/USD: +0.1% to 1.1810
  • GBP/USD: flat at 1.3513
  • USD/CNH: flat at 7.1135
  • USD/JPY: -0.1% to 147.60
• The Day Ahead:
  • 07:00 ET: MBA Mortgage Applications Index (prior 29.7%)
  • 10:00 ET: August New Home Sales (Briefing.com consensus: 650K; prior 652K)
  • 10:30 ET: EIA Crude Oil Inventories (prior -9.29M)
  • 13:00 ET: $70 billion 5-yr note auction
  • 16:10 ET: San Francisco Fed President Daly (non-FOMC voter)