Bond Market Update

Inching Lower

• U.S. Treasuries are on track for a modestly lower start after a subdued night in the futures market. Treasury futures started the overnight session with a small rally that was reversed by the time focus shifted to action in Europe. The market received a sizable batch of data, but surprises were limited. China's August trade surplus was just ahead of expectations while Japan's Q2 GDP was revised slightly higher. In other news, political turmoil is on the rise in Germany after AfD won a weekend election in Saxony-Anhalt, doubling its support. Back at home, Canada's latest counter tariffs against the U.S. took effect. The U.S. session will be free of top-tier data but the U.S. Treasury will sell $58 bln in 3-yr notes this afternoon. Crude oil is rising to its highest level since early June while the U.S. Dollar Index is down 0.3% at 98.93.
• Yield Check:
  • 2-yr: UNCH at 4.38%
  • 3-yr: +1 bp to 4.46%
  • 5-yr: +1 bp to 4.56%
  • 10-yr: +1 bp to 4.80%
  • 30-yr: +1 bp to 5.26%

• News:
  • South Korea is planning to build a gas power plant and eight nuclear power plants in the U.S. as part of a $200 bln investment project.
  • The European Central Bank is widely expected to announce a rate hike on Thursday and the market will evaluate the statement for the likelihood of another hike in December.
  • There is some speculation that British Chancellor Healey could announce tax hikes in the Autumn budget address.
  • China's August trade surplus reached CNY809.30 bln (expected CNY805.00 bln; last CNY767.07 bln) as imports grew 28.2% yr/yr (expected 30.0%; last 27.5%) and exports rose 25.0% yr/yr, as expected (last 23.9%).
  • Japan's Q2 GDP expanded 0.4% qtr/qtr (expected 0.3%; last 0.5%), Q2 GDP Capital Expenditure decreased 0.9% qtr/qtr (expected -1.2%; last -0.7%), Q2 GDP Private Consumption was unchanged qtr/qtr, as expected (last 0.3%), and Q2 External Demand rose 0.5% qtr/qtr, as expected (last 0.3%). July Overall Wage Income was up 4.7% yr/yr (expected 3.9%; last 4.0%), July Overtime Pay was up 3.1% yr/yr (expected 3.9%; last 3.4%). July Current Account surplus reached JPY2.52 trln (expected JPY2.46 trln; last JPY1.40 trln). August Economy Watchers Current Index rose to 46.4 from 45.7 (expected 46.3).
  • South Korea's Q2 GDP grew 0.6% qtr/qtr, as expected (last 1.7%), expanding 3.7% yr/yr, as expected (last 3.6%).
  • Australia's September Westpac Consumer Sentiment was down 5.2% (last 6.0%). July Building Approvals fell 3.6% m/m, as expected (last 7.2%) and Private House Approvals decreased 4.2% m/m (expected -4.2%; last 0.8%).
  • New Zealand's Q2 Manufacturing Sales Volume was up 0.8% qtr/qtr (last 3.6%).
  • Germany's July trade surplus reached EUR21.3 bln (expected surplus of EUR16.0 bln; last surplus of EUR15.4 bln) as imports fell 5.7% m/m (last 4.5%) and exports fell 0.8% m/m (expected 0.0%; last 0.9%).
  • France's July trade deficit reached EUR6.7 bln (expected deficit of EUR6.0 bln; last deficit of EUR5.8 bln) and July Current Account deficit reached EUR4.7 bln (last deficit of EUR1.6 bln).
• Commodities:
  • WTI Crude: +2.7% to $93.90/bbl
  • Gold: -0.6% to $4449.40/ozt
  • Copper: +2.4% to $6.84/lb
• Currencies:
  • EUR/USD: -0.1% to 1.1613
  • GBP/USD: UNCH at 1.3539
  • USD/CNH: UNCH at 6.7089
  • USD/JPY: UNCH at 154.28
• Data out Today:
  • 6:00 ET: August NFIB Small Business Optimism Index (actual 98.7; Briefing.com consensus 99.3; prior 99.8)
  • 15:00 ET: July Consumer Credit (Briefing.com consensus $11.3 bln; prior $14.2 bln)
• Treasury Auctions:
  • 13:00 ET: $58 bln 3-yr Treasury note auction results