Bond Market Update

Rebound Effort Fails

• U.S. Treasuries tried to recover from yesterday's sell-off, but that effort ultimately failed, even as reports suggested the U.S. and Iran are exploring discussions about a phased reopening of the Strait of Hormuz. The latter helped oil prices retreat from higher levels, but lingering suspicions about the reported discussions (and adherence to any agreement) kept oil prices in positive territory. That condition kept the pressure on Treasuries, which were also battling concerns about additional rate hikes that were stoked by comments from New York Fed President Williams and Philadelphia Fed President Paulson—both FOMC voters—high debt levels, and another disappointing Treasury auction. Like yesterday's 5-yr note auction, today's $44 billion 7-yr note auction saw some relatively soft dollar demand and foreign interest. Renewed selling hit the market after the results were released at 1:00 p.m. ET and left most securities at, or near, their highs for the session at the cash close. The 2-yr note yield has spiked 57 basis points this month, while the 10-yr note yield has jumped 44 basis points.
• Yield Check:
  • 2-yr: +2 bps to 4.91%
  • 3-yr: +2 bps to 4.99%
  • 5-yr: +4 bps to 5.04%
  • 10-yr: +7 bps to 5.18%
  • 30-yr: +7 bps to 5.47%

• 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
  • Iranian President Masoud Pezeshkian says he is willing to make a deal with U.S. to end the war before the midterm election, according to NBC News
  • US and Iran held discussions about phased reopening of the Strait of Hormuz, according to Reuters sources
  • Energy Secretary Chris Wright held conversations with energy companies about voluntarily limiting diesel exports, according to Reuters
  • 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
  • Federal Reserve Board requests public comment on two proposals related to establishing a regulatory framework for Board-supervised payment stablecoin issuers under the GENIUS Act
  • 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%
• Today's Data:
  • Initial claims decreased 1,000 to 197,000 (Briefing.com consensus: 202,000) for the week ending September 19. Continuing claims increased 2,000 to 1.719 million for the week ending September 12.
    • The key takeaway from the report is that it shows no change in the understanding that layoff activity is quite low, which is reflective of a generally solid demand environment.
  • New home sales increased 6.4% month-over-month in August to 684,000 (Briefing.com consensus: 610,000) from an upwardly revised 643,000 (from 607,000) in July. On a year-over-year basis, new home sales were down 2.0%.
    • The key takeaway from the report is that the latest monthly sales rebound exceeded expectations and coincided with lower prices, but sales still trailed their year-ago level.
  • The Q2 Current Account Deficit widened to $246.0 billion (Briefing.com consensus: -$221.0 billion) from an upwardly revised deficit of $212.6 billion (from -$228.6 billion) for Q1.
  • $44 billion 7-yr note auction drew a high yield of 5.085% that tailed the when-issued yield by nearly a basis point on soft dollar demand and weaker interest among foreign buyers.
• Commodities:
  • WTI crude: +2.4% to $94.68/bbl
  • Gold: -0.4% to $4,299.30/ozt
  • Copper: +0.4% to $6.78/lb
• Currencies:
  • EUR/USD: -0.1% to 1.1368
  • GBP/USD: -0.1% to 1.3220
  • USD/CNH: +0.1% to 6.7158
  • USD/JPY: +0.3% to 158.78
• The Day Ahead:
  • 08:30 ET: August Durable Goods Orders (Briefing.com consensus: -0.4%; prior 1.1%) and Orders, Excluding Transportation (Briefing.com consensus: 0.5%; prior 0.4%)
  • 10:00 ET: September University of Michigan Consumer Sentiment - Final (Briefing.com consensus: 47.8; prior 47.8)