Bond Market Update

September to Remember

• U.S. Treasuries gave participants a head fake today when yields moved quickly lower following some better-than-feared PCE inflation data in the August Personal Income and Spending report at 8:30 a.m. ET. The realization that a 3.4% PCE inflation rate (3.0% for core) is still well above the Fed's 2.0% target soon set in, however, and that initial move was unwound. Higher oil prices played a minor part in today's trade, but directionally, they didn't help a market that went out of the month of September "on trend" and unswayed by the Treasury announcing plans to purchase up to $6 billion of bonds on Thursday. The 10-yr note yield settled at 5.30%, up 56 basis points for the month.
• Yield Check:
  • 2-yr: unch at 4.89% (+55 bps for the month)
  • 3-yr: +1 bp to 5.00% (+60 bps for the month)
  • 5-yr: +3 bps to 5.09% (+60 bps for the month)
  • 10-yr: +4 bps to 5.30% (+56 bps for the month)
  • 30-yr: +5 bps to 5.64% (+40 bps for the month)

• News:
  • U.S. and Iran talks yielded little progress. Axios
  • Technology executives signed a constitution on artificial intelligence during a White House event. Politico
  • President Trump evaluating all options for diesel exports. FT
  • Crude oil exports through the Strait of Hormuz have reached pre-war levels, but refined products remain constrained, according to CNBC
  • Oil industry warning that diesel prices will not return to normal for more than 12 months, according to FT
  • OPEC will likely keep targets unchanged at Sunday's meeting. Reuters
  • Treasury will purchase $6 bln in bonds Thursday as part of buyback operation
  • President Trump to unveil South Korea's $200 bln U.S. investment plan, including $54 bln for Alaska LNG, according to Bloomberg
  • White House confirms "South Korea plans to invest billions into major U.S. energy projects, including a crucial Alaska LNG plan."
  • Fed releases IG report on Fed building renovations; no evidence of criminal misconduct found; says management failures led to cost increases
  • Legislation to ban Chinese cars did not pass by unanimous consent in the Senate, according to Bloomberg (Senators will likely try to pass this bill through regular order after the October recess)
  • Paramount Skydance (PSKY) bond deal draws over $109 bln in orders to help fund Warner Bros. acquisition, according to Bloomberg
  • MBA Mortgage Applications Index -6.0% wk/wk, with refinance applications down 9% and purchase applications down 4%
  • China's September Manufacturing PMI 50.1 (expected 50.1; prior 49.8), Non-Manufacturing PMI 50.2 (expected 49.2; prior 49.0), and Composite PMI 50.7 (prior 49.5)
  • U.K.'s Q2 GDP 0.5% qtr/qtr (expected 0.4%; prior 0.6%) and 1.4% yr/yr (expected 1.2%; prior 0.9%)
• Today's Data:
  • The August Personal Income and Spending report showed income up 0.2% month-over-month (Briefing.com consensus: 0.4%), spending up 0.9% (Briefing.com consensus: 0.7%), the PCE Price Index up 0.3% (Briefing.com consensus: 0.4%), and the core PCE Price Index up 0.2% (Briefing.com consensus: 0.3%). On a year-over-year basis, the PCE Price Index was up 3.4%, unchanged from July, which was revised down from 3.7%; and the core PCE Price Index was up 3.0%, also unchanged from July, which was revised down from 3.3%.
    • The key takeaway, though, is that PCE inflation, no matter how you slice it, is still far above the Fed's 2.0% inflation target, so the idea that the Fed may raise rates again before the end of the year is bound to remain a lively one. Another important takeaway is that spending outpaced income growth, which contributed to the decline in the personal savings rate.
  • The third estimate for Q2 2026 showed real GDP increased 2.2% (Briefing.com consensus: 1.5%) versus the previous estimate of 1.5%. The GDP deflator increased 6.1% (Briefing.com consensus: 6.3%) versus the the previous estimate of 6.4%.
    • The key takeaway from the report is that private domestic demand strengthened materially and provided a firm underlying growth signal, even as consumer price inflation remained elevated.
  • The September ADP Employment Change report showed private-sector employment increasing by 90,000 (Briefing.com consensus: 58,000).
  • The Advance International Trade in Goods deficit widened to $132.6 billion in August from a downwardly revised deficit of $118.9 billion (from -$118.8 billion) in July. Advance Retail Inventories increased 0.3%, while Advance Wholesale Inventories rose 0.7%.
• Commodities:
  • WTI crude: +1.4% to $90.54/bbl
  • Gold: +0.1% to $4,184.80/ozt
  • Copper: unch at $6.61/lb
• Currencies:
  • EUR/USD: -0.1% to 1.1330
  • GBP/USD: +0.2% to 1.3262
  • USD/CNH: flat at 6.7091
  • USD/JPY: flat at 157.35
• The Day Ahead:
  • 08:30 ET: Initial Jobless Claims (Briefing.com consensus: 200K; prior 197K) and Continuing Jobless Claims (prior 1719K)
  • 09:05 ET: Richmond Fed President Barkin (non-FOMC voter), Boston Fed President Collins (non-FOMC voter), and Kansas City Fed President Schmid (non-FOMC voter)
  • 09:30 ET: ECB President Lagarde
  • 09:45 ET: September S&P Global U.S. Manufacturing PMI - Final (Briefing.com consensus: 55.3; prior 57.0)
  • 10:00 ET: August Construction Spending (Briefing.com consensus: 0.3%; prior -0.1%)
  • 10:00 ET: September ISM Manufacturing Index (Briefing.com consensus: 55.2%; prior 54.6%)
  • 10:00 ET: Fed Governor Waller (FOMC voter)
  • 10:30 ET: EIA Natural Gas Inventories (prior +53 bcf)
  • 13:30 ET: Fed Governor Jefferson (FOMC voter)
  • 15:00 ET: Fed Governor Bowman (FOMC voter)
  • 15:30 ET: New York Fed President Williams (FOMC voter), Fed Governor Cook (FOMC voter)
  • 18:45 ET: Dallas Fed President Logan (FOMC voter)