Bond Market Update

Licking Some Wounds

• U.S. Treasuries had a roller-coaster day but finished the cash session on a positive note. Trading action was dictated by swings in oil prices and some sense that Treasuries were operating in a short-term oversold condition and were due for a bounce. The 2-yr note yield and 10-yr note yield went as high as 4.91% and 5.22%, respectively. WTI crude futures settled the day down 2.7% at $92.17/bbl, with a series of headlines making it sound as if an attempt is being made to try to work out a diplomatic solution between the U.S. and Iran that would reopen the Strait of Hormuz, but past history stood in the way of a more concerted acceptance of the possibility. Shorter-dated securities outperformed longer-dated securities in a curve-steepening trade. The U.S. Dollar Index dropped 0.3% on a strong and steady move by the yen (USD/JPY -1.1% to 157.14) in Friday's trading.
• Yield Check:
  • 2-yr: -6 bps to 4.85% (+10 bps for the week)
  • 3-yr: -6 bps to 4.93% (+9 bps for the week)
  • 5-yr: -5 bps to 4.99% (+12 bps for the week)
  • 10-yr: -2 bps to 5.16% (+16 bps for the week)
  • 30-yr: +2 bps to 5.49% (+16 bps for the week)

• News:
  • Iranian Foreign Minister Abbas Araghchi presented a new proposal to the U.S. that would open the Strait of Hormuz within 7 days and restart negotiations toward a "final deal." A White House official responded and said it is in a strong position and is in no rush. CNN
  • Iran/U.S. talks enter technical phase with Hormuz deal in focus, CBS News citing Al Jazeera
  • Al Jazeera says "US official to Al Jazeera: Washington is in a strong position and controls the Strait of Hormuz and therefore we are not in a hurry to reach an agreement with Iran"
  • 60 commercial vessels passed through the Strait of Hormuz Wednesday, the highest volume since July. Times of Israel
  • Gulf allies want President Trump to keep pressure on Iran. WSJ
  • President Trump's summit with Chinese President Xi yielded few outcomes. WSJ
  • Saudi Arabia crude oil exports reach highest level since Iran war began, according to CNBC
  • The Trump administration is considering alternatives to diesel export ban, including moving the issue to the state level, according to Politico
  • Senate Republicans planning vote on House-passed data center Ratepayer Protection Act next week. Politico
  • Japan Prime Minister Sanae Takaichi says undervalued currency is "problematic," according to Bloomberg
  • Fed making plans to increase bank oversight thresholds. Reuters
  • 30-year fixed mortgage rate reaches 7.45%. CNBC
• Today's Data:
  • Durable goods orders were flat month-over-month in August (Briefing.com consensus: -0.4%) following a downwardly revised 0.9% increase (from 1.1%) in July. Excluding transportation, orders were up 0.3% month-over-month (Briefing.com consensus: 0.5%) following an upwardly revised 0.7% increase (from 0.4%) in July.
    • The key takeaway from the report is that nondefense capital goods orders, excluding aircraft, which are a proxy for business spending, jumped a robust 1.6% month-over-month after increasing 0.6% in July.
  • The final reading for the University of Michigan Consumer Sentiment Index for September increased to 48.1 (Briefing.com consensus: 47.8) from the preliminary reading of 47.8. The final reading for August was 51.7. In the same period a year ago, the index stood at 55.1.
    • The key takeaway from the report is that high prices continue to adversely affect consumer sentiment, souring the short-run outlook for business conditions and expectations for year-ahead personal finances.
• Commodities:
  • WTI crude: -2.7% to $92.17/bbl
  • Gold: +0.5% to $4,320.50/ozt
  • Copper: -0.1% to $6.77/lb
• Currencies:
  • EUR/USD: +0.2% to 1.1400
  • GBP/USD: +0.2% to 1.3252
  • USD/CNH: +0.1% to 6.7231
  • USD/JPY: -1.1% to 157.14
• The Week Ahead:
  • Monday: There is no U.S. economic data of note
  • Tuesday: July FHFA Housing Price Index; S&P Case-Shiller Home Price Index; September Consumer Confidence; September JOLTS - Job Openings
  • Wednesday: MBA Mortgage Applications; September ADP Employment Change; August Personal Income and Spending; Q2 GDP - Third Estimate; August Adv. Intl. Trade in Goods, Retail Inventories, and Wholesale Inventories; September Chicago PMI; EIA Crude Oil Inventories
  • Thursday: Initial and Continuing Jobless Claims; September S&P Global U.S. Manufacturing PMI - Final; August Construction Spending; September ISM Manufacturing Index; EIA Natural Gas Inventories
  • Friday: September Employment Situation Report; August Factory Orders