Bond Market Update

Thursday Gains Challenged

• U.S. Treasuries are on track for a lower start with shorter tenors set to give back their gains from yesterday while the long bond outperforms, seeking a flat start. Treasury futures maintained a narrow range during the early part of the overnight session, holding their ground after the Bank of Japan raised its policy rate by 25 basis points to 1.25%, as expected. However, two policymakers voted against a change and Governor Ueda's remarks were seen as vague, inviting some pressure on the yen. Treasury futures reached lows during the European session, which has seen some selling in equities and sovereign debt despite another dip in energy prices. The U.K.'s Retail Sales growth exceeded August expectations (0.5%; expected -0.2%) while the U.S. session will feature the release of August Industrial Production (Briefing.com consensus 0.3%; prior 1.1%) and Capacity Utilization (Briefing.com consensus 76.4%; prior 76.3%) at 9:15 ET, followed by August Leading Index (Briefing.com consensus 0.2%; prior 0.2%) at 10:00 ET. Crude oil is slipping toward $101/bbl while the U.S. Dollar Index is up 0.3% at 100.51.
• Yield Check:
  • 2-yr: +3 bps to 4.72%
  • 3-yr: +4 bps to 4.80%
  • 5-yr: +3 bps to 4.83%
  • 10-yr: +2 bps to 4.97%
  • 30-yr: UNCH at 5.30%

• News:
  • The U.S. will reportedly delay the implementation of tariffs on excess manufacturing capacity until after the visit of China's President Xi.
  • China is targeting CNY3.5 trillion in pharmaceutical revenue by 2030.
  • Reserve Bank of Australia Governor Bullock said that the rise in global bond yields has not been disorderly, but he conceded that some upside risks to inflation are materializing.
  • A couple ECB officials spoke about the importance of avoiding second-round effects of inflation while ECB President Lagarde said that rate decisions will be made on a meeting-by-meeting basis.
  • British Chancellor Healey is lobbying EU officials to include the U.K. in its "Made in Europe" policy.
  • French Prime Minister Lecornu said that he is looking for EUR54 bln worth of savings in the budget for 2027, which should keep the deficit below 5.5% of GDP.
  • China's August FDI was down 5.3% YTD (last -6.2%).
  • Japan's August National CPI was up 0.1% m/m (last 0.5%), rising 1.9% yr/yr (last 1.9%). August National Core CPI was up 1.7% (expected 1.8%; last 1.8%).
  • South Korea's August PPI was up 0.2% m/m (last -0.4%), rising 7.9% yr/yr (last 7.7%).
  • New Zealand's August FPI was up 0.3% m/m (last 0.1%). August trade deficit reached NZD1.35 bln (expected deficit of NZD1.775 bln; last deficit of NZD2.118 bln).
  • Eurozone's July Current Account surplus reached EUR27.6 bln (expected surplus of EUR30.7 bln; last surplus of EUR35.1 bln). July Construction Output was unchanged m/m (last -1.53%).
  • U.K.'s August Retail Sales were up 0.5% m/m (expected -0.2%; last -0.5%), rising 2.4% yr/yr (expected 1.9%; last 1.2%). August Core Retail Sales were up 0.6% m/m (expected -0.2%; last -0.9%), rising 2.7% yr/yr (expected 1.9%; last 1.8%).
  • Germany's August PPI was up 1.1% m/m (expected 0.6%; last 1.1%), rising 4.6% yr/yr (expected 4.1%; last 3.0%).
• Commodities:
  • WTI Crude: -0.6% to $101.30/bbl
  • Gold: +0.4% to $4415.30/ozt
  • Copper: -0.1% to $6.658/lb
• Currencies:
  • EUR/USD: -0.1% to 1.1459
  • GBP/USD: -0.1% to 1.3344
  • USD/CNH: -0.1% to 6.6988
  • USD/JPY: +1.3% to 157.89
• Data out Today:
  • 9:15 ET: August Industrial Production (Briefing.com consensus 0.3%; prior 1.1%) and Capacity Utilization (Briefing.com consensus 76.4%; prior 76.3%)
  • 10:00 ET: August Leading Index (Briefing.com consensus 0.2%; prior 0.2%)