Bond Market Update

Shorter Tenors Reclaim Starting Losses

• U.S. Treasuries succumbed to renewed early pressure on Wednesday, which drove yields on 10s and 30s, to fresh highs for the year, though a resilient intraday showing helped longer tenors reclaim the bulk of their losses while shorter tenors ended the day with modest gains. The trading day started with losses across the curve after overnight action saw general weakness in sovereign debt with France's OATs giving back gains from Tuesday amid persistent focus on the country's poor fiscal standing and a tough 2027 budget-setting battle ahead of April's general election. There was some intraday press speculation about France potentially issuing more short-term debt, but France's finance ministry quickly refuted these reports. Treasuries were also challenged by an overnight rise in the price of oil, but that gain faded during the trading day, helping the Treasury market recover from its weak start. Shorter tenors were at the forefront of a rebound that continued through the day, with some late help from a stellar $39 bln 10-yr note reopening, which made for a big improvement from yesterday's 3-yr note sale. Granted, today's 10-yr note reopening drew the highest auction yield in nearly 26 years, but it met strong demand, nonetheless, stopping through the when-issued yield by nearly two basis points with above-average foreign demand. While the auction lifted prices across the curve, it could not prevent a lower finish in longer tenor ahead of tomorrow's $22 bln 30-yr bond reopening, while the 2-yr note settled near its high, with its yield ending at its lowest level in more than two weeks. Crude oil dipped below its 50-day moving average (88.97) while the U.S. Dollar Index rose 0.4% to 102.24, returning to levels not seen since April 2025.
• Yield Check:
  • 2-yr: -2 bps to 4.77%
  • 3-yr: -1 bp to 4.91%
  • 5-yr: -1 bp to 5.02%
  • 10-yr: +1 bp to 5.28%
  • 30-yr: +2 bps to 5.66%

• News:
  • The New York Fed's September Survey of Consumer Expectations showed an uptick in year-ahead inflation expectations to 3.9% from 3.6% while the three-year outlook rose to 3.3% from 3.2%. The five-year outlook remained at 3.0%.
  • President Trump repeated his call for lower interest rates.
  • Micron's (MU) labor union in Taiwan authorized a strike.
  • The Reserve Bank of India raised its policy rate to 5.50% from 5.25%, as expected. Cash reserve ratio remained at 3.00%.
  • Bank of Japan Governor Ueda said that fiscal conditions remain accommodative and that rate hikes will continue in response to economic development and inflation trends.
  • Japan will hold an extraordinary Diet session from October 5 to December 12.
  • Japan's August Average Cash Earnings 3.8% yr/yr (expected 3.7%; prior 4.3%) and Overtime Pay 5.2% yr/yr (prior 4.5%); October Reuters Tankan Index 22 (prior 21); August Leading Index 118.0 (expected 118.1; prior 117.7) and Coincident Indicator -1.9% m/m (prior 1.7%).
  • Australia's August Building Approvals -6.1% m/m (expected -6.1%; prior -1.9%) and 10.3% yr/yr (expected 10.3%; prior 10.9%); Private House Approvals 3.7% m/m (expected 3.7%; prior -1.9%).
  • Germany's August Industrial Production 2.0% m/m (expected 0.5%; prior -1.2%) and 2.33% yr/yr (prior -1.74%).
  • France's August Trade Balance -EUR6.1 bln (expected -EUR6.5 bln; prior -EUR6.6 bln) and Current Account -EUR1.5 bln (prior -EUR3.9 bln).
  • U.K.'s September Lloyds House Price Index was unchanged m/m (expected 0.0%; prior -0.3%) and yr/yr (prior -0.4%).
• Today's Data:
  • The weekly MBA Mortgage Index was down 4.2% to follow last week's 6.0% decrease. The Refinance Index was down 7.5% while the Purchase Index was down 2.1%.
    • Weekly crude oil inventories decreased by 3.19 mln barrels after increasing by 922,000 barrels a week ago.
  • Consumer credit increased by $8.3 billion in August (Briefing.com consensus $15.2 bln) while the July increase was revised down to $17.7 billion from $18.1 billion.
    • Revolving credit decreased by $4.8 billion while nonrevolving credit was up $13.1 billion.
  • $39 bln 10-year Treasury note reopening results (prior 12-auction average):
    • High yield: 5.300% (4.326%).
    • Bid-to-cover: 2.77 (2.51).
    • Indirect bid: 80.3% (70.3%).
    • Direct bid: 17.1% (20.3%).
• Commodities:
  • WTI crude: -1.4% to $88.22/bbl
  • Gold: -1.2% to $4140.20/ozt
  • Copper: UNCH at $6.65/lb
• Currencies:
  • EUR/USD: -0.6% to 1.1197
  • GBP/USD: -0.4% to 1.3215
  • USD/CNH: UNCH at 6.7022
  • USD/JPY: UNCH at 158.01
• The Day Ahead:
  • 8:30 ET: Weekly Initial Claims (Briefing.com consensus 200,000; prior 197,000), Continuing Claims (prior 1.701 mln)
  • 10:00 ET: August Wholesale Inventories (Briefing.com consensus 0.7%; prior 1.3%) 
  • 10:30 ET: Weekly natural gas inventories (prior +64 bcf)
• Treasury Auctions:
  • 13:00 ET: $22 bln 30-yr Treasury bond reopening results