Bond Market Update

Belly Paces Midweek Slide

• U.S. Treasuries retreated on Wednesday, lifting the 5-yr yield to its highest level in three weeks while yields on longer tenors returned toward their highs from Monday. The trading day got off to a sleepy start after a night that featured a sparse economic calendar. Japan's manufacturing sector remained in contraction, according to the flash Manufacturing PMI for September (48.4) while Germany saw continued weakness in business sentiment. The U.S. economic calendar was also sparse, though a strong New Home Sales report for August (800,000; Briefing.com consensus 650,000) contributed to pressure that Treasuries felt through the morning. The 5-yr note and shorter tenors hit fresh lows after today's mediocre 5-yr note sale, but they stayed above those lows into the afternoon while 10s and 30s slid to fresh lows during the last hour of trade. Crude oil reclaimed its 50-day moving average (64.58) while the U.S. Dollar Index climbed 0.6% to 97.88, approaching the 50-day moving average (98.03) of its own.
• Yield Check:
  • 2-yr: +1 bp to 3.60%
  • 3-yr: +3 bps to 3.60%
  • 5-yr: +3 bps to 3.71%
  • 10-yr: +3 bps to 4.15%
  • 30-yr: +2 bps to 4.76%

• News:
  • Chicago Fed President (FOMC voter) Goolsbee told the FT that he does not expect a recession and he might not be in favor of a series of rate cuts.
  • Australia's Prime Minister Albanese will visit the White House on October 20.
  • Switzerland's KOF Institute lowered its domestic growth forecast for 2026 to 0.9% from 1.5%.
  • Denmark's central bank lowered its 2025 domestic growth forecast to 2.0% from 3.6% while the outlook for 2026 was cut to 2.0% from 2.3%.
  • Sweden's NIER think thank raised its domestic forecast for 2025 to 0.9% from 0.7% while the outlook for 2026 remained at 2.6%.
  • Japan's flash September Manufacturing PMI hit 48.4 (expected 49.5; last 49.7) and flash Services PMI hit 53.0 (last 53.1). August BoJ Core CPI was up 2.0% yr/yr (expected 1.9%; last 2.0%).
  • South Korea's September Consumer Confidence hit 110.1 (last 111.4).
  • Australia's August Monthly CPI Indicator was up 3.0% (expected 2.9%; last 2.8%).
  • Germany's September ifo Business Climate Index fell to 87.7 from 88.9 (expected 89.3). September Current Assessment fell to 85.7 from 86.4 (expected 86.7) and Business Expectations fell to 89.7 from 91.4 (expected 92.0).
  • Spain's August PPI was down 1.5% yr/yr (last 0.4%).
  • Swiss September ZEW Expectations rose to -46.4 from -53.8.
• Today's Data:
  • New home sales surged 20.5% month-over-month in August to a seasonally adjusted annual rate of 800,000 units (Briefing.com consensus 650,000) -- the strongest pace since January 2022-- from an upwardly revised 664,000 (from 652,000) in July. On a year-over-year basis, new home sales were up 15.4%.
    • The key takeaway from the report is that the surge in new home sales occurred ahead of the larger drop in mortgage rates seen in September. Notably, there was a big uptick in the percentage of new homes sold over $800,000. That helps explain the large jump in average selling prices, and it may also be reflective of the large jump in stock prices lending some confidence to buying interest in the upper price brackets.
  • The weekly MBA Mortgage Index rose 0.6% to follow last week's 29.7% jump. The Refinance Index was up 0.8% while the Purchase Index ticked up 0.3%.
  • $70 bln 5-year Treasury note auction results (prior 12-auction average):
    • High yield: 3.710% (4.045%).
    • Bid-to-cover: 2.34 (2.38).
    • Indirect bid: 59.4% (68.1%).
    • Direct bid: 28.6% (20.5%).
• Commodities:
  • WTI crude: +2.5% to $65.00/bbl
  • Gold: -1.2% to $3768.40/ozt
  • Copper: +3.9% to $4.82/lb
• Currencies:
  • EUR/USD: -0.7% to 1.1735
  • GBP/USD: -0.5% to 1.3448
  • USD/CNH: +0.4% to 7.1375
  • USD/JPY: +0.9% to 148.84
• The Day Ahead:
  • 8:30 ET: 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%)
  • 10:00 ET: August Existing Home Sales (Briefing.com consensus 3.99 mln; prior 4.01 mln)
  • 10:30 ET: Weekly crude oil inventories (prior +90 bcf)
• Treasury Auctions:
  • 13:00 ET: $44 bln 7-yr Treasury note auction results