Bond Market Update

Mixed Finish to Mixed Month

• U.S. Treasuries ended Tuesday on a mixed note, as 10s and 30s recorded modest losses while shorter tenors finished in the green. The final session of the month brought the customary torrent of global economic data, but the impact on markets was muted. Longer tenors underperformed from the start, but the entire complex saw some early strength that followed the release of mediocre economic data. The Chicago PMI (40.6; prior 41.5) showed an accelerating contraction in the manufacturing sector in the Chicago Fed region while the Consumer Confidence report for September (94.2; Briefing.com consensus 96.0) missed expectations. Treasuries reached highs when the market received the Consumer Confidence report, followed by a steady pullback that continued into the afternoon, eventually pressuring 10s and 30s into the red while the front end remained in positive territory. This made for a mixed finish to a month that saw relative strength in the long bond and some softness in the belly. Crude oil fell to a one-week low, giving up $1.64, or 2.6%, for the month, while the U.S. Dollar Index slipped 0.1% to 97.79, losing 0.1% for the month.
• Yield Check:
  • 2-yr: -3 bps to 3.60% (-2 bps in September)
  • 3-yr: -2 bps to 3.61% (+2 bps in September)
  • 5-yr: -1 bp to 3.73% (+3 bps in September)
  • 10-yr: +1 bp to 4.15% (-8 bps in September)
  • 30-yr: +3 bps to 4.73% (-19 bps in September)

• News:
  • The U.S. government remains on track to shut down at midnight.
  • President Trump announced a program for direct-to-consumer sales of pharmaceuticals.
  • One of Bank of Japan's most dovish policymakers spoke in favor of a rate hike, adding that a new policy perspective will be needed to address upside risks.
  • The Japanese government raised its view of consumer spending for the first time in 13 months.
  • The Bank of Japan will release its bond purchase plan for Q4 tomorrow.
  • The Reserve Bank of Australia left its cash rate at 3.60%, as expected.
  • Reports from France suggest that the country's flat tax may be raised as part of next year's budget.
  • Spain lowered its net issuance target for the year by EUR5 bln due to strong growth.
  • China's September Manufacturing PMI hit 49.8 (expected 49.6; last 49.4) and Non-Manufacturing PMI hit 50.0 (expected 50.3; last 50.3). RatingDog September Manufacturing PMI hit 51.2 (expected 50.3; last 50.5) and RatingDog Non-Manufacturing PMI hit 52.9 (expected 52.4; last 53.0).
  • Japan's August Industrial Production was down 1.2% m/m (expected -0.7%; last -1.2%). August Retail Sales were down 1.1% yr/yr (expected 1.0%; last 0.4%). August Housing Starts fell 9.8% yr/yr (expected -5.2%; last -9.7%) and Construction Orders jumped 38.9% yr/yr (last -19.0%).
  • South Korea's August Industrial Production rose 2.4% m/m (last 0.3%), increasing 0.9% yr/yr (expected 1.3%; last 5.0%). August Retail Sales were down 2.4% m/m (last 2.7%) and August Service Sector Output fell 0.7% m/m (last 0.2%).
  • Australia's August Building Approvals were down 6.0% m/m (expected 2.6%; last -10.0%), falling 1.2% yr/yr (expected 8.3%; last 9.2%). August Private Sector Credit rose 0.6% m/m, as expected (last 0.7%) and August Private House Approvals were down 2.6% m/m (last 1.3%).
  • New Zealand's September ANZ Business Confidence hit 49.6 (last 49.7).
  • Germany's August Retail Sales were down 0.2% m/m (expected 0.6%; last -0.5%) but up 1.8% yr/yr (last 3.3%). August Import Price Index fell 0.5% m/m (expected -0.2%; last -0.4%), dropping 1.5% yr/yr (last -1.4%). September Unemployment increased by 14,000 (expected 8,000; last -9,000) and Unemployment Rate remained at 6.3%, as expected.
  • U.K.'s Q2 GDP expanded 0.3% qtr/qtr, as expected (last 0.7%), growing 1.4% yr/yr (expected 1.2%; last 1.3%). Q2 Business Investment fell 1.1% qtr/qtr (expected -4.0%; last 4.1%) but was up 3.0% yr/yr (expected 0.1%; last 5.8%). Q2 Current Account deficit reached GBP28.9 bln (expected deficit of GBP24.8 bln; last deficit of GBP21.2 bln).
  • France's August Consumer Spending rose 0.1% m/m (expected 0.3%; last -0.6%). Flash September CPI was down 1.0% m/m (expected -0.9%; last 0.4%) but up 1.2% yr/yr (expected 1.3%; last 0.9%). August PPI was down 0.2% m/m (last 0.5%) but up 0.1% yr/yr (last 0.5%).
  • Italy's flash September CPI was down 0.2% m/m (expected -0.1%; last 0.1%), rising 1.6% yr/yr (expected 1.7%; last 1.6%). August PPI was down 0.6% m/m (last 0.5%), rising 0.2% yr/yr (last 1.6%). July Industrial Sales rose 0.4% m/m (last 1.2%), increasing 1.2% yr/yr (last 0.3%).
  • Swiss September KOF Leading Indicators rose to 98.0 from 96.2 (expected 97.1).
• Today's Data:
  • The Conference Board's Consumer Confidence Index fell to 94.2 in September (Briefing.com consensus 96.0) from an upwardly revised 97.8 (from 97.4) in August. In the same period a year ago, the index stood at 99.2.
    • The key takeaway from the report is that consumers felt much less positive about business conditions, with thoughts about job availability hitting multi-year lows. That consideration will underpin the market's thinking that another rate cut is at least coming at the October FOMC meeting.
  • The Chicago PMI hit 40.6 in September (Briefing.com consensus 41.0), down from 41.5 in August.
  • The FHFA Housing Price Index was down 0.1% month-over-month in July after decreasing 0.2% in June.
  • The S&P Case-Shiller Home Price Index was up 1.9% year-over-year in July (Briefing.com consensus 1.9%), down from a revised 2.2% (from 2.1%) in June.
  • Job openings increased to 7.227 million in August from a revised 7.208 million (from 7.181 million) in July.
• Commodities:
  • WTI crude: -1.8% to $62.37/bbl
  • Gold: +0.5% to $3873.40/ozt
  • Copper: -0.8% to $4.85/lb
• Currencies:
  • EUR/USD: +0.1% to 1.1738
  • GBP/USD: +0.2% to 1.3448
  • USD/CNH: UNCH at 7.1279
  • USD/JPY: -0.5% to 147.88
• The Day Ahead:
  • 7:00 ET: Weekly MBA Mortgage Index (prior 0.6%)
  • 8:15 ET: September ADP Employment Change (Briefing.com consensus 40,000; prior 54,000)
  • 9:45 ET: Final September S&P Global U.S. Manufacturing PMI (prior 52.0)
  • 10:00 ET: August Construction Spending (Briefing.com consensus 0.1%; prior -0.1%) and September ISM Manufacturing (Briefing.com consensus 49.2%; prior 48.7%)
  • 10:30 ET: Weekly crude oil inventories (prior -0.607 mln)