Bond Market Update

Opening Losses Reclaimed

• U.S. Treasuries finished Thursday with gains across the curve after recovering from a poor start. For the second day in a row, the market slumped out of the gate, briefly lifting yields toward this week's highs. The lower start followed another night of general weakness in global sovereign debt with French OATs remaining in the spotlight as the country contends with civil unrest, which presents another headwind to an already-difficult budget battle. The early pressure was also owed to a resurgent price of oil, which reached a one-week high amid concerns that additional military action against Iran is in the cards. Despite the lower start, the market began rising off lows in morning trade, continuing its recovery into the afternoon. The bounce was assisted by midday comments from President Trump, who said that there are no plans for additional attacks on Iran ahead of the midterms, countering recent press speculation. Treasuries turned positive shortly after those remarks and saw additional buying after the U.S. Treasury followed yesterday's strong 10-yr note reopening with another good sale of 30-yr bonds. Longer tenors finished on session highs after the Treasury announced that it accepted $6 bln out of $14.89 bln submitted for today's buyback operation of maturities between 20- and 30- years. Crude oil settled back above its 50-day moving average (89.11) while the U.S. Dollar Index slipped 0.1% to 102.11.
• Yield Check:
  • 2-yr: -1 bp to 4.76%
  • 3-yr: -2 bps to 4.89%
  • 5-yr: -3 bps to 4.99%
  • 10-yr: -5 bps to 5.23%
  • 30-yr: -6 bps to 5.61%

• News:
  • Fed Governor Waller said that he supports more rate hikes, but is flexible regarding the pace and timing of these moves.
  • Bank of England Governor Bailey acknowledged that inflation risks will increase the longer high energy prices persist, though he conceded that pass-through effects remain subdued at the moment.
  • Japan's Prime Minister Takaichi restated her aim to keep JGB sales around JPY40 trln.
  • China rejected EU's request to limit exports of hybrid vehicles.
  • Australia's securities regulator ordered three private credit funds to stop raising capital due to concerns about the quality of disclosure documents.
  • French Finance Minister Lescure said that investors are still demanding French debt.
  • Japan's August Current Account JPY4.062 trln (expected JPY3.194 trln; prior JPY2.989 trln) and Adjusted Current Account JPY2.98 trln (expected JPY2.14 trln; prior JPY2.52 trln); September Economy Watchers Current Index 47.0 (expected 46.7; prior 46.4).
  • Hong Kong's September S&P Global PMI 49.2 (prior 49.5).
  • Australia's October MI Inflation Expectations 5.3% (prior 4.9%).
  • South Korea's August Current Account $46.11 bln (prior $42.08 bln).
  • Germany's August Trade Balance EUR19.5 bln (expected EUR19.0 bln; prior EUR21.6 bln); Exports -0.8% m/m (expected 0.8%; prior -0.5%) and Imports 0.9% m/m (expected 2.8%; prior -5.5%); September Car Registrations 9.0% yr/yr (prior 2.6%).
• Today's Data:
  • For the week ending October 3, initial claims decreased 2,000 to 197,000 (Brieifng.com consensus: 200,000). Continuing claims for the week ending September 26 were up 17,000 to 1.716 million.
    • The key takeaway from the report is a broken (but pleasant-sounding) record: layoff activity continues to run at low levels that reflect a solid demand environment.
  • Wholesale Inventories were up 0.5% month-over-month in August (Briefing.com consensus 0.7%) after increasing a revised 1.4% (from 1.3%) in July.
  • Weekly natural gas inventories increased by 85 bcf after increasing by 64 bcf a week ago.
  • $22 bln 30-year Treasury bond reopening results (prior 12-auction average):
    • High yield: 5.618% (4.931%).
    • Bid-to-cover: 2.54 (2.42).
    • Indirect bid: 72.3% (68.0%).
    • Direct bid: 20.9% (21.7%).
• Commodities:
  • WTI crude: +3.7% to $91.47/bbl
  • Gold: +0.4% to $4155.50/ozt
  • Copper: -1.2% to $6.57/lb
• Currencies:
  • EUR/USD: +0.1% to 1.1211
  • GBP/USD: +0.1% to 1.3228
  • USD/CNH: UNCH at 6.7037
  • USD/JPY: -0.1% to 157.83
• The Day Ahead:
  • 10:00 ET: Preliminary University of Michigan Consumer Sentiment (Briefing.com consensus 48.1; prior 48.1)