Bond Market Update

Trimming Recent Gains

• U.S. Treasuries are on track for a modestly lower start in longer tenors while the short end is set to begin closer to the unchanged level after a subdued night. Treasury futures spent the bulk of the night in a sideways range, slipping to lows during the past hour while other sovereign debt has also seen some selling. The overnight session saw a rebound in most equity markets, including South Korea's Kospi (+2.1%), though the index finished essentially where it opened, giving back a portion of its gain into the close. Fed Chairman Warsh spoke at the IMF-World Bank annual meeting overnight but did not offer any hints about a potential rate hike. Crude oil hovers just above $98/bbl while the U.S. Dollar Index is down 0.4% at 101.68.
• Yield Check:
  • 2-yr: +1 bp to 4.76%
  • 3-yr: +1 bp to 4.85%
  • 5-yr: +2 bps to 4.92%
  • 10-yr: +3 bps to 5.12%
  • 30-yr: +3 bps to 5.46%

• News:
  • Japan is delaying the formal adoption of a 3.5% defense spending target.
  • MSCI announced that it is looking at the potential reclassification of Indonesia from an emerging market economy to a standalone market, triggering an 11% plunge in the Jakarta Composite Index.
  • South Korea's September Unemployment Rate 2.6% (prior 2.7%); Import Price Index 17.6% yr/yr (prior 15.9%) and Export Price Index 40.9% yr/yr (prior 42.7%).
  • Eurozone September CPI 0.6% m/m (expected 0.6%; prior 0.4%) and 3.8% yr/yr (expected 3.8%; prior 3.2%); Core CPI 0.2% m/m (expected 0.2%; prior 0.2%) and 2.5% yr/yr (expected 2.5%; prior 2.4%); HICP excluding energy and food 2.2% yr/yr (expected 2.2%; prior 2.1%). August Trade Balance -EUR16.1 bln (prior EUR10.7 bln).
  • Italy's September CPI 0.7% m/m (expected 0.7%; prior 0.5%) and 4.2% yr/yr (expected 4.2%; prior 3.3%); HICP 2.1% m/m (expected 2.0%; prior 0.1%) and 4.2% yr/yr (expected 4.1%; prior 3.2%). August Trade Balance EUR1.773 bln (expected EUR7.500 bln; prior EUR8.247 bln).
• Commodities:
  • WTI Crude: +0.2% to $98.18/bbl
  • Gold: +0.7% to $4199.00/ozt
  • Copper: +1.3% to $6.639/lb
• Currencies:
  • EUR/USD: +0.3% to 1.1256 
  • GBP/USD: +0.5% to 1.3334
  • USD/CNH: -0.1% to 6.6847
  • USD/JPY: UNCH at 158.02
• Data out Today:
  • 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)