Bond Market Update

Monday Swoon Reversed

• U.S. Treasuries climbed on Tuesday, with the long bond reclaiming the bulk of loss from Monday while 10s and shorter tenors turned positive for the week. Intraday action, however, was a sideways affair as Treasuries opened firmly higher, defending their gains into the afternoon. The strong start followed a night of overall strength in sovereign debt, including a rebound in France's OATs after Marine Le Pen, who will be a candidate in France's presidential election in April, said that she will aim for EUR140 bln in spending cuts over five years, up from her previous plan for EUR125 bln in savings. The market also received some overnight help from a retreat in crude oil, but the bulk of oil's loss was reclaimed during the day. The opening rally met some brief resistance, but Treasuries eventually made it back to their starting levels, holding their ground through today's $58 bln 3-yr note sale, which was absorbed well by the market, but saw below-average foreign demand, ahead of tomorrow's $39 bln 10-yr note reopening. Later in the day, The Treasury announced that it accepted just $1.33 bln out of $14.76 bln offered for today's buyback operation of 2- to 3-yr notes. Crude oil dipped below its 50-day moving average (88.76) before rising back above that mark while the U.S. Dollar Index fell 0.4% to 101.81, pulling back from a seven-month high.
• Yield Check:
  • 2-yr: -4 bps to 4.79%
  • 3-yr: -4 bps to 4.92%
  • 5-yr: -4 bps to 5.03%
  • 10-yr: -4 bps to 5.27%
  • 30-yr: -2 bps to 5.64%

• News:
  • Australia's Treasurer Chalmers complained that high rates will restrain the budget.
  • A couple European Central Bank policymakers repeated that strong second-round effects of inflation have not been seen.
  • British Prime Minister Burnham is reportedly delaying a decision about potential changes to defense spending.
  • Fitch noted that British growth remains restrained by low investment.
  • India's September HSBC Services PMI 55.2 (expected 55.8; prior 54.1) and Composite PMI 55.9 (expected 56.5; prior 54.3)
  • Australia's October Westpac Consumer Sentiment -4.7% (prior -5.2%); September ANZ Job Advertisements +2.2% m/m (prior +2.6%).
  • Hong Kong's September S&P Global Manufacturing PMI 49.2 (prior 49.5).
  • Eurozone's August Retail Sales 0.1% m/m (expected 0.2%; prior -0.6%) and 0.8% yr/yr (expected 1.0%; prior 0.4%); September HCOB Construction PMI 43.4 (prior 43.0).
  • Germany's August Factory Orders -10.6% m/m (expected -0.9%; prior 3.2%); September HCOB Construction PMI 43.5 (prior 48.7).
  • France's August Industrial Production -0.3% m/m (expected 0.2%; prior -0.6%) and Government Budget Balance -EUR159.6 bln (prior -EUR145.9 bln); September HCOB Construction PMI 39.8 (prior 37.3).
  • U.K.'s September S&P Global Construction PMI 46.1 (expected 45.0; prior 44.3).
  • Italy's September HCOB Construction PMI 46.5 (prior 41.7).
  • Spain's August Industrial Production 1.5% yr/yr (prior 2.5%).
• Today's Data:
  • The trade deficit widened in August to $105.6 billion (Briefing.com consensus: -$93.7 billion) from a downwardly revised $92.8 billion (from -$88.6 billion) in July. Exports were $4.5 billion more than July exports, but imports were $17.2 billion more than July imports.
    • The key takeaway is that demand for crude oil and semiconductors helped drive the increase in exports and imports and can be looked at in part as a good sign for global economic activity.
  • $58 bln 3-year Treasury note auction results (prior 12-auction average):
    • High yield: 4.932% (3.831%).
    • Bid-to-cover: 2.62 (2.67).
    • Indirect bid: 57.6% (64.8%).
    • Direct bid: 31.7% (23.4%).
• Commodities:
  • WTI crude: +0.1% to $89.44/bbl
  • Gold: +0.7% to $4188.30/ozt
  • Copper: +0.2% to $6.65/lb
• Currencies:
  • EUR/USD: +0.4% to 1.1260
  • GBP/USD: +0.4% to 1.3275
  • USD/CNH: UNCH at 6.7017
  • USD/JPY: +0.2% to 158.13
• The Day Ahead:
  • 7:00 ET: Weekly MBA Mortgage Index (prior -6.0%)
  • 10:30 ET: Weekly crude oil inventories (prior +0.92 mln)
  • 14:00 ET: September FOMC Minutes
  • 15:00 ET: August Consumer Credit (Briefing.com consensus $15.2 bln; prior $18.1 bln)
• Treasury Auctions:
  • 13:00 ET: $39 bln 10-yr Treasury note reopening results