Bond Market Update

Sideways Session Gives Way to Late Slide

• U.S. Treasuries ended the midweek session with losses after a mostly sideways session gave way to some late selling. The market started the day on a modestly higher note with a brief early attempt at extending today's opening gains, but that move ran into resistance, pushing action below today's starting levels. Longer tenors defended their slim gains through a weak $13 bln 20-yr bond reopening in the afternoon, but the entire complex slumped to lows during the final 20 minutes of action after Reuters reported that the State Department will order the departure of certain personnel from embassies in Persian Gulf countries. That report fueled speculation about intensified military action against Iran, prompting a modest rally in oil shortly after it ended today's pit session with a slim loss. Besides the late selling in Treasuries, equities benefited from renewed optimism surrounding the AI trade. Crude oil settled just above $97/bbl while the U.S. Dollar Index rose 0.1% to 101.83.
• Yield Check:
  • 2-yr: +3 bps to 4.82%
  • 3-yr: +4 bps to 4.91%
  • 5-yr: +4 bps to 4.97%
  • 10-yr: +3 bps to 5.15%
  • 30-yr: +1 bp to 5.44%

• News:
  • Russia's President Putin indicated that he is open to talks about ending the war in Ukraine.
  • The Bank of Korea will meet overnight, but it is not expected to increase its policy rate from the current 3.00%.
  • South Korea's exports through the first 20 days of October were up 105.4% with chip exports jumping 222.5%.
  • Former Bank of Japan executive director said that quarterly rate hikes are likely to continue.
  • Reserve Bank of Australia Governor Hauser acknowledged that the inflation outlook has worsened since August.
  • Japan's September Trade Balance -JPY536.6 bln (expected -JPY181.0 bln; prior -JPY1,111.9 bln), with exports +16.7% yr/yr (expected +20.1%; prior +19.3%) and imports +18.9% yr/yr (expected +19.6%; prior +28.0%).
  • South Korea's September PPI +0.2% m/m (prior +0.1%) and +7.7% yr/yr (prior +7.9%).
  • New Zealand's September Credit Card Spending +6.9% yr/yr (prior +3.6%).
  • India's September Infrastructure Output +7.9% yr/yr (prior +5.9%).
  • U.K.'s September CPI +0.4% m/m (expected +0.3%; prior +0.5%) and +3.5% yr/yr (expected +3.4%; prior +3.1%); Core CPI +0.2% m/m (expected +0.2%; prior +0.3%) and +2.8% yr/yr (expected +2.8%; prior +2.6%). September PPI Input +1.5% m/m (expected +1.3%; prior +0.5%) and +8.3% yr/yr (expected +7.2%; prior +6.7%); PPI Output +0.8% m/m (expected +0.7%; prior +0.7%) and +4.6% yr/yr (expected +4.3%; prior +3.8%). September Public Sector Net Borrowing GBP24.50 bln (expected GBP23.80 bln; prior GBP18.30 bln).
  • Switzerland's September M3 Money Supply CHF1,238.9 bln (prior CHF1,239.5 bln).
• Today's Data:
  • The weekly MBA Mortgage Index fell 5.3% to follow last week's 2.7% decrease. The Purchase Index fell 7.3% while the Refinance Index was down 2.0%.
  • Weekly crude oil inventories decreased by 3.06 mln barrels after decreasing by 8.56 mln barrels a week ago. 
  • $13 bln 20-year Treasury bond reopening results (prior 12-auction average):
    • High yield: 5.469% (4.921%).
    • Bid-to-cover: 2.73 (2.63).
    • Indirect bid: 58.2% (64.1%).
    • Direct bid: 31.6% (24.4%).
• Commodities: 
  • WTI crude: -2.1% to $97.16/bbl
  • Gold: +0.7% to $4150.10/ozt
  • Copper: -0.3% to $6.58/lb
• Currencies:
  • EUR/USD: -0.2% to 1.1220
  • GBP/USD: +0.1% to 1.3382
  • USD/CNH: UNCH at 6.6749
  • USD/JPY: +0.1% to 158.30
• The Day Ahead:
  • 8:30 ET: Weekly Initial Claims (Briefing.com consensus 200,000; prior 199,000) and Continuing Claims (prior 1.710 mln)
  • 10:00 ET: September Leading Index (Briefing.com consensus -0.2%; prior -0.1%)
  • 10:30 ET: Weekly natural gas inventories (prior 67 bcf)