Bond Market Update

Williams Saves the Day

• U.S. Treasuries ended the day mixed in an eventful trading session. Yields ebbed in the overnight trade, as oil prices fell, before flowing in the cash session, sending the 2-yr note yield as high as 4.95%, the 10-yr note yield up to 5.29%, and the 30-yr bond yield to its highest level (5.62%) since 2002. That happened, too, as oil prices continued to decline, suggesting that other forces were at work behind the selling interest. Yields ultimately faded from the aforementioned highs in afternoon trading, catalyzed by the view from New York Fed President Williams (FOMC voter) that there is no need for urgency after the Fed raised rates in September. He said there is more time to gather information. That was music to the ears of the fed funds futures market, which quickly dialed back the probability of a 25-basis-point hike to 4.00-4.25% at the October FOMC meeting to 51.5% from 70.9% yesterday. The 2-yr note yield, which is more sensitive to changes in the fed funds rate, dropped quickly to 4.88% before settling at 4.89% ahead of a busy day Wednesday for economic data that will feature the August readings for the PCE Price Index and core PCE Price Index.
• Yield Check:
  • 2-yr: -4 bps to 4.89%
  • 3-yr: -2 bps to 4.99%
  • 5-yr: -1 bp to 5.06%
  • 10-yr: +1 bp to 5.26%
  • 30-yr: +2 bps to 5.59%

• News:
  • Middle Eastern oil exports reach highest level since the Iran war began. Iran appears to be losing its leverage over the Strait of Hormuz. WSJ
  • NY Fed President Williams (FOMC voter) says there is no need for urgency after the rate hike in September; there is time to gather more information
  • Fed Governor Barr (FOMC voter) reiterates that policy needs to be recalibrated to more evenly balance the dual-mandate risks and return inflation to 2% in a timely fashion.
  • U.S. and Iranian officials complained about each other's stances during mediator meetings. Politico
  • Mediators making renewed push for deal between U.S. and Iran, according to FT
  • China planning to introduce additional measures to support the economy. Bloomberg
  • OpenAI decided against releasing latest artificial intelligence model due to safety concerns. WSJ
  • President Trump, after meeting with AI executives today, says there was belief in the room that there should be self-regulation.
  • St. Louis Fed President Alberto Musalem (non-FOMC voter) says the most important thing a central bank can tell the public is not what it will do at the next few meetings. It is how and why it will decide as the economy unfolds.
  • Automakers are introducing fewer new models. WSJ
  • Anthropic will warn in IPO filing that AI poses "existential risks to humanity." Reuters
• Today's Data:
  • July FHFA Housing Price Index (Actual 0.3%; prior 0.0%)
  • July S&P Case-Shiller Home Price Index (Actual 2.5%; prior revised to 2.2% from 2.1%).
  • August JOLTS - Job Openings (Actual 7.079M; Briefing.com consensus: 7.150M; prior revised to 7.335 from 7.271M)
  • The Conference Board's Consumer Confidence Index decreased to 81.9 in September (Briefing.com consensus 90.0) from a downwardly revised 88.6 (from 89.4) in August. In the same period a year ago, the index stood at 95.6.
    • The key takeaway from the report is that consumer confidence weakened for both present conditions and the six-month outlook, with elevated prices for goods and services factoring into that assessment.
• Commodities:
  • WTI crude: -3.4% to $89.26/bbl
  • Gold: +0.2% to $4,180.40/ozt
  • Copper: -0.6% to $6.61/lb
• Currencies:
  • EUR/USD: -0.2% to 1.1343
  • GBP/USD: -0.1% to 1.3228
  • USD/CNH: -0.1% to 6.7081
  • USD/JPY: -0.1% to 157.21
• The Day Ahead:
  • 07:00 ET: MBA Mortgage Applications Index (prior -1.5%)
  • 08:15 ET: September ADP Employment Change (Briefing.com consensus: 58K; prior 38K)
  • 08:30 ET: August Personal Income (Briefing.com consensus: 0.4%; prior 0.4%), Personal Spending (Briefing.com consensus: 0.7%; prior 0.2%), PCE Price Index (Briefing.com consensus: 0.4%; prior 0.2%), and Core PCE Price Index (Briefing.com consensus: 0.3%; prior 0.2%)
  • 08:30 ET: Q2 GDP - Third Estimate (Briefing.com consensus: 1.5%; prior 1.5%) and Q2 GDP Deflator - Third Estimate (Briefing.com consensus: 6.3%; prior 6.4%)
  • 08:30 ET: August Adv. Intl. Trade in Goods (prior -$118.8B), Adv. Retail Inventories (prior 0.7%), and Adv. Wholesale Inventories (prior 1.3%)
  • 09:45 ET: September Chicago PMI (Briefing.com consensus: 53.2; prior 47.1)
  • 10:30 ET: EIA Crude Oil Inventories (prior +2.97M)
  • 15:25 ET: Fed Governor Cook (FOMC voter) speech on rural economy
  • 17:10 ET: Chicago Fed President Goolsbee (non-FOMC voter)
  • 18:00 ET: Minneapolis Fed President Kashkari (FOMC voter)