Bond Market Update

Unable to Overcome Starting Losses

• U.S. Treasuries began the week with modest losses after failing to bounce from their lower start. Investors returned from the Labor Day weekend to a slightly lower start in the cash market, though the early losses were limited despite an overnight rally in WTI crude toward $95/bbl. Treasuries followed their lower start with an immediate bounce that had the entire complex turning positive just a few minutes after the start, but that move was reversed just as quickly, with the market extending its losses slightly as the day went on. The New York Fed released its Survey of Consumer Expectations for August, showing a dip in three-year inflation expectations to 3.2% from 3.3% while the one- and five-year outlooks remained at their respective 3.6% and 3.0%, but all that had little impact on today's action. The U.S. Treasury kicked off this week's note auction slate with a solid $58 bln 3-yr note offering, which will be followed by a 10-yr note sale tomorrow. Crude oil settled at its highest level since late July while the U.S. Dollar Index fell 0.4% to 98.83.
• Yield Check:
  • 2-yr: +2 bps to 4.40%
  • 3-yr: +2 bps to 4.47%
  • 5-yr: +2 bps to 4.57%
  • 10-yr: +2 bps to 4.81%
  • 30-yr: +2 bps to 5.26%

• News:
  • The U.S. Treasury sanctioned 36 entities for supporting Iran's aviation sector.
  • Canada's retaliatory tariffs came into effect.
  • 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).
• Today's Data:
  • Total consumer credit increased by $18.1 bln in August (Briefing.com consensus $11.3 bln) while the July increase was revised up to $14.5 bln from $14.2 bln.
  • The NFIB Small Business Optimism Index fell to 98.7 in August (Briefing.com consensus 99.3) from 99.8 in July.
  • $58 bln 3-year Treasury note auction results (prior 12-auction average):
    • High yield: 4.474% (3.764%).
    • Bid-to-cover: 2.72 (2.66).
    • Indirect bid: 62.1% (64.1%).
    • Direct bid: 26.9% (23.5%).
• Commodities:
  • WTI crude: +1.7% to $93.02/bbl
  • Gold: -0.8% to $4438.90/ozt
  • Copper: +2.1% to $6.82/lb
• Currencies:
  • EUR/USD: +0.1% to 1.1627
  • GBP/USD: UNCH at 1.3544
  • USD/CNH: UNCH at 6.7066
  • USD/JPY: -0.3% to 153.84
• The Day Ahead:
  • 7:00 ET: Weekly MBA Mortgage Index (prior 0.8%)
• Treasury Auctions:
  • 13:00 ET: $39 bln 10-yr Treasury note auction results