Bond Market Update

Still Smarting

• U.S. Treasuries are mixed, with the front end outperforming the back end in early trading. Both ends, though, are still smarting from yesterday's aggressive sell-off that revolved around a fear of more rate hikes. New York Fed President Williams (FOMC voter) poured a little more fuel on that fire, saying today that it is reasonable to expect another rate hike by the end of the year. The market had that priced in already, however, so today's reaction has been muted. Rising oil prices continue to stoke inflation concerns that are driving longer-dated yields higher along with festering debt/supply concerns. WTI crude futures are up 1.3% to $93.36/bbl as a truce between the U.S. and Iran remains elusive. Separately, the U.S. and China have an agreement to extend their trade truce by two months to January 10, but that is seen by some as a disappointment, with reports ahead of today's Trump-Xi meeting suggesting that agreement could have possibly been six months or longer. There is a $44 billion 7-yr note auction today that will be watched closely after yesterday's weak 5-yr note auction.
• Yield Check:
  • 2-yr: -1 bp to 4.88%
  • 3-yr: -1 bp to 4.96%
  • 5-yr: +1 bp to 5.01%
  • 10-yr: +2 bps to 5.13%
  • 30-yr: +3 bps to 5.43%

• News:
  • New York Fed President John Williams (voting FOMC member) says it is reasonable to expect another rate increase this year. CNBC
  • Treasury Secretary Scott Bessent says the U.S. & China agreed to extend the trade truce until January 10. China could also make additional announcements in coming days around agriculture purchases and potential deals in the financial services sector. He said if there is an Iran deal, he "guarantees" Iran will stick to it. He said the U.S. is helping escort 10-17 million barrels of oil out of the Strait of Hormuz every day. Fox News
  • Energy Secretary Chris Wright told the oil industry to prepare for limits on diesel exports. Bloomberg
  • A judge ordered the White House to restore press access to CNN, MSNow, and Politico. FT
  • NEC Director Kevin Hassett questioning Federal Reserve's decision to raise interest rates in an inflation environment he describes as "subdued." Bloomberg
  • China takes possession of F-35 parts diverted to Hong Kong, according to Bloomberg
  • Qatar increased liquefied natural gas tanker traffic through the Strait of Hormuz to the highest level in 2 months, according to Bloomberg
  • Swiss National Bank left its policy rate unchanged at 0.00%; Riksbank held at 1.75%; and Norges Bank increased 25 bps to 4.50%
• Commodities:
  • WTI crude: +1.3% to $93.36/bbl
  • Gold: -0.5% to $4,297.50/ozt
  • Copper: +0.5% to $6.79/lb
• Currencies:
  • EUR/USD: -0.1% to 1.1375
  • GBP/USD: -0.1% to 1.3230
  • USD/CNH: +0.1% to 6.7150
  • USD/JPY: +0.3% to 158.86
• The Day Ahead:
  • 08:30 ET: Initial Jobless Claims (Briefing.com consensus: 202K; prior 196K) and Continuing Jobless Claims (prior 1730K)
  • 08:30 ET: Q2 Current Account Balance (Briefing.com consensus: -$221.0B; prior -$228.6B)
  • 10:00 ET: August New Home Sales (Briefing.com consensus: 610K; prior 607K)
  • 10:30 ET: EIA Natural Gas Inventories (prior +44 bcf)
  • 11:30 ET: Bilateral meeting between U.S. and China
  • 13:00 ET: $44 billion 7-yr note auction