Bond Market Update

A Weaker Turn

• U.S. Treasuries have taken a weaker turn that has pushed the 2-yr note yield up to 4.79% and the 10-yr note yield close to 5.00%. The selling interest has been linked to a reversal in oil prices (from lower to higher) as diplomatic efforts to secure a truce between the U.S. and Iran continue to fall short. Separately, market participants remain cautious about increased supply and the specter of the Fed continuing to remove policy accommodation. Yesterday's $69 billion 2-yr note auction is being followed today by a $70 billion 5-yr note auction.
• Yield Check:
  • 2-yr: +4 bps to 4.79%
  • 3-yr: +2 bps to 4.84%
  • 5-yr: +2 bps to 4.86%
  • 10-yr: +1 bp to 4.98%
  • 30-yr: +2 bps to 5.32%

• News:
  • The U.S. and Iran held talks. Iran presented conditions for reopening the Strait of Hormuz, including lifting the naval blockade, releasing frozen Iranian assets, and ending the war on all fronts. Axios
  • Several Republicans running for congressional and gubernatorial offices in 2026 are calling for an end to the Iran war. CNN
  • President Trump and Chinese President Xi both agree that AI development shouldn't be slowed. Bloomberg
  • Treasury Secretary Scott Bessent could get a second job as President Trump's AI Czar. Semafor
  • President Trump's Board of Peace will introduce a $2.45 billion Gaza recovery plan. Axios
  • Midwestern Republicans want President Trump to restrict diesel exports, but Republicans from energy states are urging the president not to do so. Politico
  • JPMorgan (JPM) considering using private credit to underwrite some credit card applications. WSJ
  • SoftBank (SFTBY) offering record yields on junk bonds. Bloomberg
  • Eurozone's September HCOB Manufacturing PMI 52.7 (expected 52.6; prior 52.7) and Services PMI 53.0 (expected 51.4; prior 51.6); Composite PMI 53.1 (expected 51.7; prior 52.0) 
• Commodities:
  • WTI crude: +0.3% to $90.80/bbl
  • Gold: -0.9% to $4,339.00/ozt
  • Copper: -0.5% to $6.80/lb
• Currencies:
  • EUR/USD: -0.4% to 1.1406
  • GBP/USD: -0.5% to 1.3276
  • USD/CNH: +0.1% to 6.7078
  • USD/JPY: +0.4% to 157.92
• The Day Ahead:
  • 07:00 ET: MBA Mortgage Applications Index (Actual -1.5%; 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