Bond Market Update

Post-CPI Bounce Extended

• U.S. Treasuries recorded strong gains on Thursday, extending their midweek rebound from post-CPI lows. The September CPI report was followed by this morning's release of a hot PPI report, which showed an acceleration in year-over-year PPI (to 6.3% from 5.6%) and core PPI rates (to 5.0% from 4.8%), but Treasuries still held onto their strong gains as the market remained focused on the poor performance of heavily-indebted AI/data center infrastructure names like CoreWeave (CRWV). The stock started the session at its lowest level since May 2025 before rebounding alongside other names that started deep in the red. Treasuries slipped from their morning highs as the tech sector climbed off its low, but the pullback abated once the Treasury complex revisited today's opening levels, where all tenors remained into the close, keeping yields at three-week lows. Treasuries kept their gains even though crude oil continued climbing toward $100/bbl, settling at its highest level in nearly a month. The U.S. Dollar Index fell 0.5% to 102.00, backtracking from levels last seen in early April.
• Yield Check:
  • 2-yr: -5 bps to 4.75%
  • 3-yr: -7 bps to 4.84%
  • 5-yr: -9 bps to 4.90%
  • 10-yr: -10 bps to 5.09%
  • 30-yr: -10 bps to 5.43%

• News:
  • The U.S. Treasury accepted $6 bln out of $40.8 bln offered in today's buyback operation of longer-dated Treasuries.
  • There was a growing belief that the Reserve Bank of Australia will hold its policy steady at the next meeting after the release of a weak jobs report for September.
  • German Chancellor Merz cautioned that negotiating the EU's seven-year budget will be difficult, but he is hopeful for an agreement before the end of the year.
  • British Chancellor Healey signaled that he intends to follow the IMF's guidance for continuing to reduce the deficit in the upcoming Autumn budget.
  • Japan's August Core Machinery Orders 5.2% m/m (expected 2.2%; prior -3.7%) and 18.6% yr/yr (expected 15.7%; prior 11.2%); Industrial Production -2.4% m/m (expected -1.7%; prior -0.2%) and Capacity Utilization -4.2% m/m (prior 0.5%).
  • South Korea's September Trade Balance $49.97 bln (expected $49.85 bln; prior $34.79 bln); Exports 83.7% yr/yr (expected 83.5%; prior 68.7%) and Imports 26.0% yr/yr (expected 26.0%; prior 22.4%).
  • Australia's September Employment Change -39.3K (expected 19.6K; prior 29.3K), Full Employment Change 34.4K (prior -4.0K), Unemployment Rate 4.7% (expected 4.6%; prior 4.7%), and Participation Rate 66.8% (expected 67.0%; prior 67.0%).
  • Eurozone August Industrial Production -0.5% m/m (expected 0.0%; prior -0.3%) and -1.1% yr/yr (expected -0.1%; prior -0.3%). 
  • U.K.'s August GDP 0.1% m/m (expected -0.1%; prior 0.4%) and 2.1% yr/yr (expected 1.7%; prior 1.8%); three-month GDP growth 0.7% (expected 0.5%; prior 0.5%). August Industrial Production 0.8% m/m (expected -0.1%; prior 0.3%) and 1.6% yr/yr (expected 0.7%; prior 0.8%); Manufacturing Production 1.2% m/m (expected -0.1%; prior 1.0%) and 3.0% yr/yr (expected 2.3%; prior 2.2%). August Trade Balance -GBP18.01 bln (expected -GBP21.90 bln; prior -GBP19.30 bln); Construction Output -0.2% m/m (expected 0.0%; prior -0.5%) and -1.8% yr/yr (expected -1.6%; prior -1.9%).
  • France's September CPI -0.3% m/m (expected -0.3%; prior 0.7%) and 3.1% yr/yr (expected 3.0%; prior 2.4%); HICP -0.3% m/m (expected -0.4%; prior 0.4%) and 3.4% yr/yr (expected 3.4%; prior 3.4%).
  • Switzerland's September PPI 0.3% m/m (expected 0.6%; prior 0.7%) and -0.2% yr/yr (prior -0.7%).
• Today's Data:
  • The Producer Price Index for final demand increased 1.3% month-over-month in September (Briefing.com consensus: 0.5%) following a 0.5% increase in August. The September increase was the largest increase since March 2022 and left the index up 6.3% year-over-year versus 5.6% in August. The index for final demand, less food and energy, rose 0.7% (Brieifng.com consensus: 0.3%) following a 0.2% increase in August. The September increase left the index up 5.0% year-over-year versus 4.8% in August.
    • The key takeaway from the report is the accelerated pace of inflation at the wholesale level. That will be looked at by many as a setup for ongoing pass-through price pressures for the consumer.
  • Retail Sales jumped 0.8% month-over-month in September (Briefing.com consensus: 0.3%) following an upwardly revised 1.3% (from 1.2%) in August. Excluding autos, retail sales rose 0.9% (Briefing.com consensus 0.3%) after increasing 1.4% in August.
    • The key takeaway from the report is that there was continued strength across many discretionary spending categories that wasn't just driven by higher prices. Spending at food services and drinking places, for instance, was up 1.1% after increasing 1.4% in August.
  • Initial claims for the week ending October 10 increased by 1,000 to 199,000 (Briefing.com consensus: 200,000). Continuing jobless claims for the week ending October 3 decreased by 4,000 to 1.710 million.
    • The key takeaway from the report continues to be that it signals low layoff activity, which is a reflection of a solid demand environment.
  • The October Philadelphia Fed Index dropped to 20.9 (Briefing.com consensus: 29.0) from 37.8. 
    • The dividing line between expansion and contraction is 0.0, so this report denotes a slowdown in the pace of expansion in October.
  • The October Empire State Manufacturing Survey increased to 25.5 (Briefing.com consensus: 7.0) from 7.6 in September.
    • The dividing line between expansion and contraction is 0.0, so this report denotes an acceleration in the pace of expansion in October.
  • Business Inventories were up 0.4% in August (Briefing.com consensus 0.4%) after increasing a revised 0.9% (from 0.8%) in July.
  • Weekly crude oil inventories decreased by 8.557 mln barrels after decreasing by 3.186 mln barrels a week ago.
  • Weekly natural gas inventories increased by 67 bcf after increasing by 85 bcf a week ago.
• Commodities:
  • WTI crude: +3.0% to $97.92/bbl
  • Gold: +1.5% to $4169.70/ozt
  • Copper: -1.5% to $6.56/lb
• Currencies:
  • EUR/USD: +0.5% to 1.1209 
  • GBP/USD: +0.6% to 1.3270
  • USD/CNH: -0.1% to 6.6904
  • USD/JPY: -0.1% to 158.14
• The Day Ahead:
  • 8:30 ET: September Import Prices (prior 0.7%), Import Prices ex-oil (prior 0.8%), Export Prices (prior 0.6%), and Export Prices ex-agriculture (prior 0.7%) 
  • 9:15 ET: September Industrial Production (Briefing.com consensus 0.4%; prior 0.0%) and Capacity Utilization (Briefing.com consensus 76.5%; prior 76.3%)
  • 16:00 ET: August Net Long-Term TIC Flows (prior -$27.9 bln)