Bond Market Update

Pressure Returns After Brief Respite

• U.S. Treasuries found renewed pressure on Tuesday, causing longer tenors to give back their modest gains from the start of the week. The bulk of today's selling took place at the open, as the Treasury complex retreated after an overnight rally in the price of oil, which continued into the trading day. Treasuries attempted to bounce from their lower start but found resistance once the 2-yr note approached yesterday's closing level during the initial hour of action. The rest of the session saw a return toward lows, though longer tenors fought to finish just above their worst levels even though today's $13 bln 20-yr bond reopening met dismal demand, including record-low foreign demand. Treasury Secretary Bessent appeared before the House Financial Services Committee, telling lawmakers that global issues, including rising energy prices, are responsible for higher Treasury yields. Crude oil reached its highest level since mid-May while the U.S. Dollar Index rose 0.2% to 99.61.
• Yield Check:
  • 2-yr: +3 bps to 4.66%
  • 3-yr: +3 bps to 4.76%
  • 5-yr: +4 bps to 4.83%
  • 10-yr: +4 bps to 5.00%
  • 30-yr: +4 bps to 5.36%

• 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%).
• Today's Data:
  • The Empire State Manufacturing Index fell to 7.6 in September (Briefing.com consensus 14.1) from 20.6 in August.
  • $13 bln 20-year Treasury bond reopening results (prior 12-auction average):
    • High yield: 5.420% (4.854%).
    • Bid-to-cover: 2.57 (2.64).
    • Indirect bid: 52.5% (65.1%).
    • Direct bid: 30.7% (24.2%).
• Commodities:
  • WTI crude: +4.5% to $105.82/bbl
  • Gold: -0.4% to $4333.60/ozt 
  • Copper: +0.5% to $6.44/lb
• Currencies:
  • EUR/USD: -0.1% to 1.1541
  • GBP/USD: -0.2% to 1.3476
  • USD/CNH: +0.1% to 6.7117
  • USD/JPY: +0.5% to 155.12
• The Day Ahead:
  • 7:00 ET: Weekly MBA Mortgage Index (prior -2.7%)
  • 8:30 ET: August Retail Sales (Briefing.com consensus 0.9%; prior -0.6%), Retail Sales ex-auto (Briefing.com consensus 0.5%; prior -0.3%), August Import Prices (prior -0.4%), Import Prices ex-oil (prior 0.4%), Export Prices (prior -1.3%), and Export Prices ex-agriculture (prior -1.5%)
  • 10:00 ET: July Business Inventories (Briefing.com consensus 0.2%; prior 0.0%) and September NAHB Housing Market Index (Briefing.com consensus 34; prior 35)
  • 10:30 ET: Weekly crude oil inventories (prior -390,000)
  • 14:00 ET: September FOMC Decision (Briefing.com consensus 3.75-4.00%; prior 3.50-3.75%)
  • 16:00 ET: July Net Long-Term TIC Flows (prior -$172.7 bln)