Bond Market Update

Longer Tenors Defend Starting Gains

• U.S. Treasuries had a mixed showing on Tuesday with 10s and 30s defending their gains throughout the day while the front end finished modestly lower. Shorter tenors underperformed from the start amid renewed pressure from an overnight rally in the price of oil, which sent WTI crude past its September high (106.75) to a level not seen since late April. However, oil quickly reversed from its high, allowing Treasuries to set fresh session highs in the late morning. Oil's reversal was assisted by a report from Israel's N1 News that a proposal from mediators in the U.S.-Iran conflict received approval from the U.S., though the report was not confirmed by other news sources or U.S. officials, and was later met with another report saying that an agreement is not close. This invited a brief rebound in oil and a pullback from highs in Treasuries, which sent shorter tenors into the red. The trading range narrowed in afternoon action, allowing longer tenors to maintain their gains while the front end could not avoid a lower finish. Economic data released today focused on the housing sector, showing continued weakness in both housing starts (1.221 mln; Briefing.com consensus 1.305 mln) and Pending Home Sales (-7.3%; Briefing.com consensus 0.1%) while tomorrow's session will be free of top-tier data, though the U.S. Treasury will sell 20-yr bonds. Crude oil ultimately finished at the bottom of today's $9/bbl range while the U.S. Dollar Index fell 0.3% to 101.70.
• Yield Check:
  • 2-yr: +3 bps to 4.79%
  • 3-yr: +2 bps to 4.87%
  • 5-yr: +1 bp to 4.94%
  • 10-yr: -2 bps to 5.12%
  • 30-yr: -5 bps to 5.43%

• News:
  • The U.S. will propose a trilateral summit with leaders of Russia and Ukraine today, according to Politico. 
  • British Chancellor Healey is ruling out an increase to the capital gains tax in the upcoming Autumn budget.
  • Germany's Chancellor Merz and France's President Macron called for an agreement on an EU budget before the end of the year.
  • China's PBoC left its one-year Loan Prime Rate unchanged at 3.00%, in line with expectations, and maintained the five-year Loan Prime Rate at 3.50%, also as expected.
  • Eurozone August Current Account EUR8.7 bln (expected EUR29.2 bln; prior EUR27.2 bln) and Construction Output +1.85% m/m (prior +0.19%)
  • Germany's September PPI +1.9% m/m (expected +1.5%; prior +1.1%) and +6.7% yr/yr (expected +6.3%; prior +4.6%). October ZEW Economic Sentiment 28.1 (expected 30.2; prior 34.7) and Current Conditions -35.9 (expected -45.0; prior -47.1); Eurozone ZEW Economic Sentiment 18.5 (expected 23.6; prior 25.8)
  • U.K.'s August Unemployment Rate 4.7% (expected 4.9%; prior 4.9%); Employment Change +102K (expected +20K; prior +67K); Average Earnings including bonuses +3.7% yr/yr (expected +3.8%; prior +3.9%) and excluding bonuses +3.7% (expected +3.6%; prior +3.6%). September Claimant Count Change +30.3K (expected +19.4K; prior +7.0K).
• Today's Data:
  • Total housing starts were down 5.2% month-over-month in September to a seasonally adjusted annual rate of 1.221 million (Briefing.com consensus: 1.305 million) following an upwardly revised 1.288 million (from 1.275 million) in August. Building permits were down 0.2% month-over-month to a seasonally adjusted annual rate of 1.400 million (Briefing.com consensus: 1.390 million).
    • The key takeaway from the report is that there was no growth in permits for single-unit dwellings in any region. Building permits are a leading indicator, and the lack of growth is a reflection of the constraints builders and homebuyers alike face from higher financing costs.
  • Pending Home Sales were down 7.3% in September (Briefing.com consensus 0.1%) after increasing 0.3% in August.
• Commodities:
  • WTI crude: -2.1% to $101.09/bbl
  • Gold: -0.4% to $4123.30/ozt
  • Copper: +0.3% to $6.60/lb
• Currencies:
  • EUR/USD: +0.2% to 1.1236
  • GBP/USD: +0.6% to 1.3380
  • USD/CNH: -0.1% to 6.6748
  • USD/JPY: -0.2% to 158.19
• The Day Ahead:
  • 7:00 ET: Weekly MBA Mortgage Index (prior -2.7%)
  • 10:30 ET: Weekly crude oil inventories (prior -8.56 mln)
• Treasury Auctions:
  • 13:00 ET: $13 bln 20-yr Treasury bond reopening results