Bond Market Update

Breaking Even

• U.S. Treasuries had an uneven day, notwithstanding that several securities across the curve finished even for the session. The overnight trade featured a notable drop in oil prices that helped put a bid in Treasuries. The 2-yr note yield went as low as 4.71%, and the 10-yr note yield moved down to 4.92%. The positive price action and lower yields could not be sustained, however, when oil prices started back up again, pressured in part by President Trump's contention before the UN General Assembly that Iran will make a deal after the midterm election in early November. That seems like a long time to wait in this market. The president later added that his representatives met with Iranian officials for three hours today in a meeting that went "very well." That helped keep selling efforts in check and Treasuries on an even keel heading into the close, having also digested what largely amounted to an average (which isn't bad) $69 billion 2-yr note auction. Wednesday's session will include a $70 billion 5-yr note auction.
• Yield Check:
  • 2-yr: unch at 4.75%
  • 3-yr: unch at 4.82%
  • 5-yr: +1 bp to 4.84%
  • 10-yr: +1 bp to 4.97%
  • 30-yr: unch at 5.30%

• News:
  • President Trump, in a speech to UN General Assembly, said he has a big decision to make on Iran: does he make a deal with Iran, or does he "annihilate" the Iranian republic? He believes Iran will make a deal after the midterm election because Iran wants to see how the election turns out. 
  • President Trump, in a meeting with Ukraine President Volodymyr Zelenskyy, says his representatives met with Iranian officials for three hours today; says the meeting went "very well"
  • President Trump says he has called for a temporary ban on diesel exports; Treasury Secretary Scott Bessent says his department is examining that
  • China and the U.S. discussed artificial intelligence and investments on the second day of trade talks. Bloomberg
  • Iran says it can reopen the Strait of Hormuz within seven days, according to Reuters, if the U.S. eases military pressure, but Iranian media denied that report, according to Euro News
  • Saudi Arabia has restarted the East-West oil pipeline, but the pipeline is pumping at a low rate. Reuters
  • CMS confirms crack down on fraud, waste, and abuse in the Federal Health Insurance Marketplace-canceling approximately 315,000 unauthorized enrollments
  • Republicans pressuring President Trump to restrict exports of diesel. Politico
  • Transportation Secretary Duffy wants Congress to approve $30 bln for aviation systems, according to Reuters
  • Governor Greg Abbott of Texas directs Texas Commission on Environmental Quality to halt all permits sought by data center providers until ERCOT completes its audit
  • CMS announces new preliminary Medicare payment rates for laboratory services
  • Swiss National Bank left its policy rate unchanged at 0.00%, as expected
• Today's Data:
  • The $69 billion 2-yr note auction saw a high yield of 4.787% that slightly tailed the when-issued yield of 4.785% on a 2.63 bid-to-cover ratio that was just above the prior 12-auction average of 2.61. 
• Commodities:
  • WTI crude: -0.6% to $95.21/bbl
  • Gold: -0.1% to $4,376.60/ozt
  • Copper: +1.2% to $6.84/lb
• Currencies:
  • EUR/USD: -0.3% to 1.1431
  • GBP/USD: -0.3% to 1.3324
  • USD/CNH: +0.1% to 6.6985
  • USD/JPY: +0.1% to 157.52
• The Day Ahead:
  • 07:00 ET: MBA Mortgage Applications Index (prior -4.1%)
  • 09:45 ET: Preliminary September S&P Global U.S. Manufacturing PMI (prior 53.9)
  • 09:45 ET: Preliminary September S&P Global U.S. Services PMI (prior 56.5)
  • 10:05 ET: Fed Governor Barr (FOMC voter) speech on "Economic Outlook and Housing"
  • 10:30 ET: EIA crude oil inventories (prior -0.64 mln)
  • 13:00 ET: $70 billion 5-yr note auction