Bond Market Update

Long End Lags Ahead of PPI

• U.S. Treasuries are on track for a lower start with longer tenors expected to show relative weakness after outperforming yesterday. Treasury futures spent the early part of the overnight session in a sideways range, sliding to lows as focus turned to action in Europe, where the market is primed for a 25-basis point rate hike from the European Central Bank at 8:15 ET. In addition to the widely expected hike, the market heard more hawkish rhetoric from Japan where Bank of Japan policymaker Masu said that the central bank needs to pull real rates out of negative territory, adding that accelerating inflation could force additional rate hikes. Like Treasuries, other sovereign debt has faced pressure despite a small slate of data and news. President Trump appeared at the Republican midterm convention yesterday, promising a $5,000 "dividend" payment for every adult citizen if Republicans win the midterms. The U.S. session will feature the release of August PPI (Briefing.com consensus 0.4%; prior 0.0%) and Core PPI (Briefing.com consensus 0.3%; prior 0.2%) at 8:30 ET and the U.S. Treasury will complete this week's note and bond auction slate with a $22 bln 30-yr bond reopening at 13:00 ET. Crude oil has climbed toward $98/bbl while the U.S. Dollar Index is up 0.1% at 98.93.
• Yield Check:
  • 2-yr: +2 bps to 4.45%
  • 3-yr: +3 bps to 4.55%
  • 5-yr: +3 bps to 4.64%
  • 10-yr: +4 bps to 4.88%
  • 30-yr: +3 bps to 5.32%

• News:
  • China's National Development and Reform Commission discussed its five-year plan with representatives from Amazon, NVIDIA, Dell, and many other U.S. companies.
  • British Prime Minister Burnham opened the door for another Scottish independence referendum.
  • Australia relaxed its gas reserve rules for exporters of LNG.
  • Australia's September MI Inflation Expectations remained at 4.9%.
  • Germany's final August CPI was up 0.2% m/m, as expected (last 0.8%), rising 2.9% yr/yr, as expected (last 2.9%).
  • Italy's July Industrial Production rose 0.7% m/m (expected 0.3%; last -1.1%) and was unchanged yr/yr (expected -0.6%; last -0.6%).
  • Spain's July Industrial Production rose 2.3% yr/yr (last 1.1%).
• Commodities:
  • WTI Crude: +1.5% to $97.51/bbl
  • Gold: -0.8% to $4423.80/ozt
  • Copper: -4.2% to $6.599/lb
• Currencies:
  • EUR/USD: -0.2% to 1.1616
  • GBP/USD: -0.1% to 1.3527
  • USD/CNH: +0.1% to 6.7085
  • USD/JPY: +0.4% to 154.16
• Data out Today:
  • 8:30 ET: August PPI (Briefing.com consensus 0.4%; prior 0.0%), Core PPI (Briefing.com consensus 0.3%; prior 0.2%), weekly Initial Claims (Briefing.com consensus 208,000; prior 206,000), and Continuing Claims (prior 1.779 mln)
  • 10:00 ET: Wholesale Inventories (Briefing.com consensus 1.3%; prior 0.2%) and August Existing Home Sales (Briefing.com consensus 4.03 mln; prior 4.06 mln)
  • 10:30 ET: Weekly natural gas inventories (prior +30 bcf)
  • 12:00 ET: Weekly crude oil inventories (prior -4.45 mln)
• Treasury Auctions:
  • 13:00 ET: $22 bln 30-yr Treasury bond reopening results