Bond Market Update

Opening Gains Reversed Despite Weak Jobs Report

• U.S. Treasuries finished the week with losses across the curve after a brief morning rally gave way to a reversal that lifted yields on longer tenors back to their highest levels of the year. Treasuries started the Friday session with modest gains that were extended in immediate reaction to the September jobs report, which showed much weaker-than-expected nonfarm payroll growth (29,000; Briefing.com consensus 100,000), combined with a downward revision to August's reading and an uptick in the Unemployment Rate to 4.2% (Briefing.com consensus 4.1%) from 4.1%. The report invited some impulse buying as the market speculated that it could help build a case against additional rate hikes, but shorter tenors were back to pre-NFP levels just 90 minutes later while longer tenors followed suit. Treasuries faced additional pressure as the morning went on, reaching lows in the early afternoon. That selling returned yields on 10s and 30s to within a couple basis points of their closing highs from this week. Crude oil started the day with a brief dip below its 50-day moving average (88.64) but it reversed a portion of that fall to end the week with a loss of about $1/bbl.
• Yield Check:
  • 2-yr: +3 bps to 4.82% (+4 bps this week)
  • 3-yr: +6 bps to 4.96% (+2 bps this week)
  • 5-yr: +5 bps to 5.06% (+5 bps this week)
  • 10-yr: +4 bps to 5.28% (+10 bps this week)
  • 30-yr: +3 bps to 5.63% (+13 bps this week)

• News:
  • Japan's Prime Minister Takaichi reassured that total annual issuance of JGBs will be controlled appropriately, repeating that negative impacts from fiscal policy will not be allowed.
  • South Korea's finance ministry noted that bond issuance will be reduced if needed.
  • European Central Bank policymaker Rehn said that higher longer-term rates are expected o slow growth.
  • Japan's September Tokyo CPI was up 2.7% yr/yr (prior 1.9%); Tokyo Core CPI was up 2.7% yr/yr (expected 2.4%; prior 1.8%); Tokyo CPI ex-food and energy was up 2.7% yr/yr (prior 1.4%); August Unemployment Rate rose to 2.5% from 2.4% (expected 2.4%).
  • South Korea's September CPI was up 0.3% m/m (expected 0.4%; prior 0.2%), rising 2.9% yr/yr (expected 2.9%; prior 3.1%).
  • Eurozone's September CPI was up 0.6% m/m (prior 0.4%), rising 3.8% yr/yr (expected 3.7%; prior 3.2%); Core CPI was up 0.2% m/m (prior 0.2%), rising 2.5% yr/yr (expected 2.5%; prior 2.4%).
  • Spain's September Unemployment increased by 23.6K (expected 17.6K; prior 44.4K).
  • Italy's August Retail Sales rose 0.3% m/m (expected -0.1%; prior -0.4%), climbing 0.5% yr/yr (prior 1.0%).
• Today's Data:
  • September nonfarm payrolls increased by 29,000 (Briefing.com consensus: 100,000). The 3-month average for total nonfarm payrolls was unchanged at 51,000. August nonfarm payrolls revised to 133,000 from 162,000. July nonfarm payrolls revised to -10,000 from 21,000.
    • September private sector payrolls increased by 46,000 (Briefing.com consensus: 100,000). August private sector payrolls revised to 89,000 from 127,000. July private sector payrolls revised to 28,000 from 71,000.
    • September unemployment rate was 4.2% (Briefing.com consensus: 4.1%) versus 4.1% in August. Persons unemployed for 27 weeks or more accounted for 27.1% of the unemployed versus 27.0% in August. The U6 unemployment rate, which accounts for unemployed and underemployed workers, decreased to 7.6% from 7.7% in August.
    • September average hourly earnings were up 0.1% (Briefing.com consensus: 0.3%) on the heels of a 0.3% increase in August. Over the last 12 months, average hourly earnings have risen 3.0% versus 3.1% for the 12 months ending in August.
    • The average workweek in September was 34.4 hours (Briefing.com consensus: 34.3) versus 34.4 hours in August. The manufacturing workweek was unchanged at 40.6 hours. Factory overtime was unchanged at 3.0 hours.
    • The labor force participation rate increased to 61.8% from 61.6% in August and the employment-population ratio increased to 59.2% from 59.1% in August.
  • Factory orders increased 0.1% month-over-month in August (Briefing.com consensus: 0.0%) following a downwardly revised 0.8% increase (from 0.9%) in July. Excluding transportation, factory orders increased 0.3% on the heels of a 0.7% increase in July. Shipments of manufactured goods were flat after being up 0.8% in July.
    • The key takeaway from the report is that business spending was up solidly in August, notwithstanding an overall sluggish increase in factory orders.
• Commodities:
  • WTI crude: -2.1% to $91.10/bbl
  • Gold: -1.2% to $4162.60/ozt
  • Copper: -0.5% to $6.55/lb
• Currencies:
  • EUR/USD: +0.1% to 1.1251
  • GBP/USD: +0.4% to 1.3240
  • USD/CNH: -0.1% to 6.7063
  • USD/JPY: -0.2% to 157.78
• The Week Ahead:
  • Monday: Final September S&P Global U.S. Services PMI (prior 58.7) at 9:45 ET and September ISM Non-Manufacturing Index (Briefing.com consensus 55.7; prior 55.4) at 10:00 ET
  • Tuesday: August Trade Balance (Briefing.com consensus -$93.7 bln; prior -$88.6 bln) at 8:30 ET and $58 bln 3-yr Treasury note auction results at 13:00 ET
  • Wednesday: Weekly MBA Mortgage Index (prior -6.0%) at 7:00 ET; weekly crude oil inventories (prior +0.92 mln) at 10:30 ET; September FOMC Minutes at 14:00 ET; $39 bln 10-yr Treasury note reopening results at 13:00 ET; and August Consumer Credit (Briefing.com consensus $15.2 bln; prior $18.1 bln) at 15:00 ET
  • Thursday: Weekly Initial Claims (Briefing.com consensus 200,000; prior 197,000), Continuing Claims (prior 1.701 mln) at 8:30 ET; August Wholesale Inventories (Briefing.com consensus 0.7%; prior 1.3%) at 10:00 ET; weekly natural gas inventories (prior +64 bcf) at 10:30 ET; and $22 bln 30-yr Treasury bond reopening results at 13:00 ET
  • Friday: Preliminary University of Michigan Consumer Sentiment (Briefing.com consensus 48.1; prior 48.1) at 10:00 ET