Bond Market Update

Longer Tenors Deepen Post-FOMC Retreat

• U.S. Treasuries finished Friday with modest losses in longer tenors, resulting in a lower finish for the week. Treasuries started the day with slim gains that were defended in immediate reaction to the Personal Income/Outlays report for August, which beat expectations, suggesting ongoing health in the economy, but with persisting above-target inflation. The sideways start gave way to a mid-morning slide that sent the entire complex into the red, but the short end put up a fight after lagging earlier this week while the 5-yr note and longer tenors finished closer to their morning lows. Today's selling left the 5-yr yield at a one-month high just above its 50-day moving average (3.766%) while yields on longer tenors finished at their highest levels in three weeks. Crude oil climbed for the fourth consecutive day while the U.S. Dollar Index fell 0.4% to 98.15, slipping from a three-week high back to its 50-day moving average (98.02).
• Yield Check:
  • 2-yr: -1 bp to 3.65% (+7 bps this week)
  • 3-yr: UNCH at 3.66% (+9 bps this week)
  • 5-yr: UNCH at 3.77% (+8 bps this week)
  • 10-yr: +2 bps to 4.19% (+5 bps this week)
  • 30-yr: +1 bp to 4.77% (+1 bp this week)

• News:
  • The Atlanta Fed's GDPNow forecast for Q3 GDP was raised to 3.9% from 3.3% in the previous estimate.
  • President Trump announced a few new tariffs that will be coming into effect on October 1, including a 100% tariff for imported branded and generic pharmaceuticals if no plant being built in U.S, a 25% tariff for heavy trucks, a 50% tariff for kitchen cabinets, bathroom vanities, and associated products, and a 30% tariff for upholstered furniture.
  • Japan's September Tokyo CPI was up 2.5% yr/yr (prior 2.5%) and Tokyo Core CPI was up 2.5% yr/yr (expected 2.8%; prior 2.5%).
  • South Korea's September Manufacturing BSI Index remained at 70.
  • Singapore's August Industrial Production was down 9.7% m/m (expected -4.6%; prior 8.8%) and down 7.8% yr/yr (expected -2.5%; prior 7.7%).
  • Italy's September Business Confidence remained at 87.3 (expected 87.5) and Consumer Confidence rose to 96.8 from 96.2 (expected 96.5).
  • Spain's Q2 GDP expanded 0.8% qtr/qtr (expected 0.7%; last 0.6%), growing 3.1% yr/yr (expected 2.8%; last 3.2%).
• Today's Data:
  • Personal income increased 0.4% month-over-month in August (Briefing.com consensus: 0.3%) following a 0.4% increase in July. Personal spending jumped 0.6% month-over-month (Briefing.com consensus: 0.4%) following a 0.5% increase in July. The PCE Price Index was up 0.3% month-over-month, as expected, and the core PCE Price Index, which excludes food and energy, was up 0.2%, also as expected. On a year-over-year basis, the PCE Price Index was up 2.7%, versus 2.6% in July, and the core PCE Price Index was up 2.9%, unchanged from July.
    • The key takeaway from the report is the lack of headline surprise for the inflation prints. That helped calm some of the market's angst about tariff pass-through being more demonstrable; therefore, it was better than feared, which qualifies in a relative sense as being good. The solid income and spending results were a bonus, befitting an economy that is still on a growth trajectory.
  • The final University of Michigan Consumer Sentiment reading for September checked in at 55.1 (Briefing.com consensus: 55.4) versus the preliminary reading of 55.4. The final reading for August was 58.2. In the same period a year ago, the index stood at 70.1. Year-ahead inflation expectations slipped to 4.7% from the preliminary reading of 4.8% and the final reading of 4.8% for August. Long-run inflation expectations fell to 3.7% from the preliminary reading of 3.9% and the final reading of 3.5% for August.
    • The key takeaway from the report is that expectations for the macroeconomy, including the labor market and business conditions, and personal finances receded.
• Commodities:
  • WTI crude: +1.1% to $65.69/bbl
  • Gold: +1.0% to $3809.00/ozt
  • Copper: +0.4% to $4.78/lb
• Currencies:
  • EUR/USD: +0.4% to 1.1703
  • GBP/USD: +0.5% to 1.3407
  • USD/CNH: UNCH at 7.1402
  • USD/JPY: -0.2% to 149.46
• The Week Ahead:
  • Monday: August Pending Home Sales (Briefing.com consensus 0.4%; prior -0.4%) at 10:00 ET
  • Tuesday: July FHFA Housing Price Index (prior -0.2%) and July S&P Case-Shiller Home Price Index (Briefing.com consensus 1.9%; prior 2.1%) at 9:00 ET; September Chicago PMI (prior 41.5) at 9:45 ET; September Consumer Confidence (Briefing.com consensus 96.0; prior 97.4) and July job openings (prior 7.181 mln) at 10:00 ET
  • Wednesday: Weekly MBA Mortgage Index (prior 0.6%) at 7:00 ET; September ADP Employment Change (Briefing.com consensus 40,000; prior 54,000) at 8:15 ET; final September S&P Global U.S. Manufacturing PMI (prior 52.0) at 9:45 ET; August Construction Spending (Briefing.com consensus 0.1%; prior -0.1%) and September ISM Manufacturing (Briefing.com consensus 49.2%; prior 48.7%) at 10:00 ET; and weekly crude oil inventories (prior -0.607 mln) at 10:30 ET
  • Thursday: Weekly Initial Claims (Briefing.com consensus 220,000; prior 218,000) and Continuing Claims (prior 1.926 mln) at 8:30 ET; August Factory Orders (Briefing.com consensus 0.8%; prior -1.3%) at 10:00 ET; and weekly natural gas inventories (prior +75 bcf) at 10:30 ET
  • Friday: September Nonfarm Payrolls (Briefing.com consensus 39,000; prior 22,000), Nonfarm Private Payrolls (Briefing.com consensus 40,000; prior 38,000), Unemployment Rate (Briefing.com consensus 4.3%; prior 4.3%), Average Hourly Earnings (Briefing.com consensus 0.3%; prior 0.3%), and Average Workweek (Briefing.com consensus 34.2; prior 34.2) at 8:30 ET; final September S&P Global U.S. Services PMI (prior 53.9) at 9:45 ET; and September ISM Services (Briefing.com consensus 51.7%; prior 52.0%) at 10:00 ET