Bond Market Update

Modest Bounce After 10-Yr Yield Creeps Past 5.000%

• U.S. Treasuries began the week with modest gains in most tenors after an early continuation of last week's selling found mid-morning resistance, sparking a shallow bounce. Treasuries faced pressure out of the gate after crude oil rallied toward a morning peak just shy of $105/bbl. Once again, the opening weakness resulted in fresh 2026 highs in yields on all notes and bonds with the 10-yr note yield peaking at 5.01%, two basis points above its high from late 2023. The opening slide abated shortly after that milestone was crossed, with some help from a few social media posts from President Trump. He pushed back against the recent wave of calls to establish guardrails on AI development and said that Russia and Ukraine are open to stopping strikes on each other's energy infrastructure. He also mentioned a new approach that is taking shape in dealings with Iran. The rebound in Treasuries accelerated as oil backed down from its best level of the day and gave back the bulk of its gain, though it still added $1/bbl for the day. Today's session was free of economic data, but things will pick up in the middle of the week with the market growing more confident that a rate hike will be announced on Wednesday afternoon. The U.S. Dollar Index rose 0.3% to 99.40, rising back above its 200-day moving average (99.14).
• Yield Check:
  • 2-yr: -1 bp to 4.63%
  • 3-yr: UNCH at 4.73%
  • 5-yr: UNCH at 4.79%
  • 10-yr: -1 bp to 4.96%
  • 30-yr: -3 bps to 5.33%

• News:
  • Japan's chief cabinet secretary said that JGB issuance will be controlled through the initial and extra budgets.
  • European Central Bank policymakers Kazaks, Kazimir, and Simkus are leaving the door open to additional rate hikes.
  • China's August New Loans reached CNY60.0 bln (expected CNY480.0 bln; last -CNY340.0 bln), August Outstanding Loans grew 5.0% yr/yr (expected 5.1%; last 5.1%), and August total social financing CNY1.660 trln (expected CNY2.04 trln; last CNY660.0 bln)
  • Japan's July Industrial Production -0.2% m/m (expected 0.1%; last 1.9%) and Capacity Utilization 0.5% m/m (last 4.1%) 
  • Hong Kong's Q2 PPI 13.1% yr/yr (last 17.7%). Q2 Industrial Production 2.3% yr/yr (last 3.2%)
  • New Zealand's August Performance of Services Index 51.2 (last 50.6). July Visitor Arrivals 0.5% m/m
  • India's August WPI Inflation 9.92% yr/yr (expected 9.89%; last 9.78%) and August CPI 4.98% (expected 4.80%; last 4.44%)
  • Swiss August PPI was up 0.7% m/m (expected 0.1%; last -0.1%) but down 0.7% yr/yr (last -2.1%).
• Commodities:
  • WTI crude: +1.2% to $101.23/bbl
  • Gold: -1.3% to $4352.30/ozt
  • Copper: -2.1% to $6.41/lb
• Currencies:
  • EUR/USD: -0.3% to 1.1557
  • GBP/USD: -0.1% to 1.3510
  • USD/CNH: UNCH at 6.7082
  • USD/JPY: +0.4% to 154.14
• The Day Ahead:
  • 8:30 ET: September Empire State Manufacturing (Briefing.com consensus 14.1; prior 20.6)
• Treasury Auctions:
  • 13:00 ET: $13 bln 20-yr Treasury bond reopening results