Bond Market Update

 Pressure Returns

• U.S. Treasuries are on track for a lower start that will reverse yesterday's modest gains in longer tenors. Treasury futures spent the bulk of the night in a steady retreat, but a bounce began taking shape shortly after the start of the European session as crude oil retreated from its overnight high. Investors received a sizable batch of data, which showed below-consensus August Retail Sales growth in China due to weak auto sales coupled with above-consensus Industrial Production growth. In Europe, ZEW Economic Sentiment for the eurozone weakened in September while Germany's reading strengthened. The U.S. session will see a $13 bln 20-yr bond reopening at 13:00 ET and Treasury Secretary Bessent will testify before the House Financial Services Committee today at 10:00 ET. Crude oil is back above $102/bbl while the U.S. Dollar Index is up 0.2% at 99.57.
• Yield Check:
  • 2-yr: +2 bps to 4.65%
  • 3-yr: +2 bps to 4.75%
  • 5-yr: +3 bps to 4.82%
  • 10-yr: +4 bps to 5.00%
  • 30-yr: +4 bps to 5.37%

• News:
  • Japan is considering an increase to its defense spending target to 3.5% of GDP from the current 2.0%.
  • The Bank of England plans to stop active sales of 20- and 30-yr Gilts, aiming to slow rising yields.
  • European Central Bank policymaker Moulin said that last week's rate hike was justified by the inflation outlook, adding that member states need to reduce the overall budget deficit.
  • China's August Retail Sales rose 0.4% yr/yr (expected 0.7%; last 0.6%), Industrial Production increased 5.2% yr/yr (expected 4.8%; last 4.5%), Fixed Asset Investment fell 7.2% yr/yr (expected -7-1%; last -6.7%), and House Prices were down 3.0% (last -3.2%). August Unemployment Rate rose to 5.3% from 5.2% (expected 5.2%). 
  • Japan's July Tertiary Industry Activity Index fell to 0.9 from 5.4.
  • South Korea's August Import Price Index was up 15.6% yr/yr (last 18.8%) and Export Price Index rose 42.4% yr/yr (last 48.9%). August trade surplus reached $34.79 bln (expected surplus of $34.75 bln; last surplus of $30.39 bln) as imports grew 22.4% yr/yr (expected 22.5%; last 26.5%) and exports jumped 68.7% yr/yr (expected 68.7%; last 63.0%).
  • New Zealand's August Electronic Card Retail Sales were down 0.9% m/m (last 1.2%), but up 0.2% yr/yr (last 3.4%).
  • India's August trade deficit reached $26.86 bln (last deficit of $31.98 bln).
  • Eurozone's September ZEW Economic Sentiment fell to 25.8 from 31.4 (expected 39.2). July trade surplus reached EUR14.2 bln (expected surplus of EUR3.7 bln; last surplus of EUR7.2 bln).
  • Germany's September ZEW Economic Sentiment rose to 34.7 from 34.2 (expected 39.8) and ZEW Current Conditions rose to -47.1 from -61.1 (expected -53.0). August WPI was up 0.9% m/m (expected 0.1%; last 0.2%), rising 6.8% yr/yr (last 5.3%).
  • U.K.'s July three-month employment increased by 67,000 (last 83,000), July Average Earnings Index + Bonus rose 3.9% yr/yr, as expected (last 4.2%), July Unemployment Rate remained at 4.9% (expected 5.0%), and August Claimant Count increased by 27,800 (expected 8,300; last -11,800).
  • France's August CPI was up 0.7% m/m, as expected (last 0.6%), rising 2.4% yr/yr, as expected (last 2.1%).
  • Italy's July trade surplus reached $8.240 bln (expected surplus of $4.770 bln; last surplus of $4.343 bln).
  • Spain's August CPI was up 0.7% m/m, as expected (last 0.3%), rising 4.3% yr/yr, as expected (last 3.6%). August Core CPI was up 2.9% yr/yr, as expected (last 3.0%).
• Commodities:
  • WTI Crude: +0.8% to $102.18/bbl
  • Gold: -0.7% to $4322.30/ozt
  • Copper: +0.1% to $6.409/lb
• Currencies:
  • EUR/USD: -0.1% to 1.1542
  • GBP/USD: -0.1% to 1.3486
  • USD/CNH: +0.1% to 6.7123
  • USD/JPY: +0.3% to 154.78
• Data out Today:
  • 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