Bond Market Update

Opening Range Maintained

• Longer-dated Treasuries trade a bit above their opening levels while shorter tenors remain essentially where they started. The early portion of the Thursday session has been largely uneventful, due in part to the ongoing lack of economic data from government sources. The National Association of Realtors released the Existing Home Sales report for September, showing an increase to 4.06 million (Briefing.com consensus 4.05 mln) from 4.00 million in August. On a separate note, JP Morgan expects the Fed to announce the end of quantitative tightening at the conclusion of next week's policy meeting.
• Yield Check:
  • 2-yr: +2 bps to 3.46%
  • 3-yr: +3 bps to 3.47%
  • 5-yr: +3 bps to 3.58%
  • 10-yr: +3 bps to 3.98%
  • 30-yr: +2 bps to 4.56%

Data Recon

• Existing home sales increased 1.5% month-over-month in September to a seasonally adjusted annual rate of 4.06 million (Briefing.com consensus 4.05 million) from an unrevised 4.00 million in August. Sales were up 4.1% on a year-over-year basis.
  • The key takeaway from the report is that home sales in September were aided by falling mortgage rates, which eased (but did not negate) affordability constraints for some home buyers.
• Yield Check:
  • 2-yr: +3 bps to 3.47%
  • 3-yr: +3 bps to 3.47%
  • 5-yr: +3 bps to 3.58%
  • 10-yr: +3 bps to 3.98%
  • 30-yr: +2 bps to 4.56%

Pulling Back From Three Days of Gains

• U.S. Treasuries are on track for a lower start after three days of gains in most tenors. Treasury futures held their ground through the bulk of the night, but selling pressure began building near the end of the Asian session, continuing into early morning action. Global equity markets had a generally positive showing while the data flow has remained light. In news, Japan Prime Minister's Takaichi's cabinet is starting out with a strong approval rating of 71%, according to a poll conducted by Yomiuri. Crude oil is rallying toward its 50-day moving average (62.30) after the U.S. sanctioned Russia's Rosneft and Lukoil. The U.S. Dollar Index is up 0.2% at 99.10.
• Yield Check:
  • 2-yr: +3 bps to 3.47%
  • 3-yr: +3 bps to 3.47%
  • 5-yr: +4 bps to 3.59%
  • 10-yr: +4 bps to 3.99%
  • 30-yr: +4 bps to 4.58%

• News:
  • The Bank of Korea left its policy rate at 2.50%, as expected. Governor Rhee said that high home prices and weak won are preventing the central bank from cutting rates. · China's State Council removed Wang Dongwei from the vice minister of finance post.
  • Germany's council of tax experts increased its forecast for tax revenue though 2029. Finance Minister Klingbeil said that the increased forecast reflects a more positive outlook.
  • The Swiss National Bank released the Minutes from its September meeting, showing no appetite for additional easing.
  • Hong Kong's September CPI was up 0.1% m/m (last 0.1%), rising 1.1% yr/yr (last 1.1%).
  • Singapore's September CPI was up 0.4% m/m (last 0.5%), rising 0.7% yr/yr (expected 0.6%; last 0.5%). September Core CPI was up 0.4% yr/yr (expected 0.2%; last 0.3%).
  • Australia's Q3 NAB Quarterly Business Confidence rose to 2 from 0.
  • U.K.'s October CBI Industrial Trends Orders fell to -38 from -27 (expected -28).
  • France's October Business Survey rose to 101 from 97 (expected 96).
  • Spain's August trade deficit reached EUR6.00 bln (last deficit of EUR4.01 bln).
• Commodities:
  • WTI Crude: +5.0% to $61.41/bbl
  • Gold: +1.5% to $4127.30/ozt
  • Copper: +1.8% to $5.088/lb
• Currencies:
  • EUR/USD: -0.2% to 1.1588
  • GBP/USD: -0.1% to 1.3338
  • USD/CNH: UNCH at 7.1266
  • USD/JPY: +0.5% to 152.69
• Data out Today:
  • 10:00 ET: September Existing Home Sales (Briefing.com consensus 4.05 mln; prior 4.00 mln)
  • 10:30 ET: Weekly natural gas inventories (prior +80 bcf)

Staying at October Highs

• U.S. Treasuries recorded modest gains on Wednesday with most tenors finishing essentially where they started. Treasuries inched higher out of the gate after a quiet night in the futures market. There was some chatter about likely stimulus in Japan that will exceed last year's package while in Europe, the U.K.'s September CPI report showed stubborn inflation. The Secured Overnight Financing Rate rose to 4.23% from 4.16%, but that was still seven basis points shy of last week's high. Treasuries faced some early pressure, but they found support near yesterday's opening levels, bouncing off lows as equities struggled. The rebound was extended in the early afternoon thanks to a strong $13 bln 20-yr bond reopening. The post-auction bid sent the 20-yr bond and shorter tenors to fresh highs for the day while the 30-yr bond stopped a bit above its starting level. Crude oil climbed off a five-month low while the U.S. Dollar Index remained little changed near 98.90.
• Yield Check:
  • 2-yr: -2 bps to 3.44%
  • 3-yr: -2 bps to 3.44%
  • 5-yr: -1 bp to 3.55%
  • 10-yr: -1 bp to 3.95%
  • 30-yr: -1 bp to 4.54%

• News:
  • Japan's Prime Minister Takaichi is planning to propose a stimulus package that is larger than last year's to offset the impact of inflation.
  • President Trump will visit Japan early next week.
  • Japan's September trade deficit reached JPY234.6 bln (expected surplus of JPY22.0 bln; last deficit of JPY242.8 bln) as imports grew 3.3% yr/yr (expected 0.6%; last -5.2%) and exports rose 4.2% yr/yr (expected 4.6%; last -0.1%).
  • South Korea's September PPI was up 0.4% m/m (last -0.1%), rising 1.2% yr/yr (last 0.6%).
  • U.K.'s September CPI was unchanged m/m (last 0.3%), rising 3.8% yr/yr (expected 4.0%; last 3.8%). September Core CPI was unchanged m/m (expected 0.2%; last 0.3%), rising 3.5% yr/yr (expected 3.7%; last 3.6%). September Input PPI was down 0.1% m/m (expected 0.3%; last 1.1%) and Output PPI was unchanged m/m (expected 0.2%; last 0.6%). September House Price Index rose 3.0% yr/yr (expected 2.5%; last 2.8%).
• Today's Data:
  • The weekly MBA Mortgage Index fell 0.3% to follow last week's 1.8% decrease. The Purchase Index was down 5.2% while the Refinance Index rose 4.0%.
  • Weekly crude oil inventories decreased by 961,000 barrels after increasing by 3.52 mln barrels a week ago.
  • $13 bln 20-year Treasury bond reopening results (prior 12-auction average):
    • High yield: 4.506% (4.795%).
    • Bid-to-cover: 2.73 (2.60).
    • Indirect bid: 63.6% (66.6%).
    • Direct bid: 26.3% (19.2%).
• Commodities:
  • WTI crude: +2.2% to $58.51/bbl
  • Gold: -1.1% to $4065.70/ozt
  • Copper: +0.4% to $4.99/lb
• Currencies:
  • EUR/USD: +0.1% to 1.1610
  • GBP/USD: UNCH at 1.3360
  • USD/CNH: UNCH at 7.1263
  • USD/JPY: UNCH at 151.88
• The Day Ahead:
  • 10:00 ET: September Existing Home Sales (Briefing.com consensus 4.05 mln; prior 4.00 mln)
  • 10:30 ET: Weekly natural gas inventories (prior +80 bcf)

Auction Reaction

• U.S. Treasuries are approaching their opening levels, having seen an acceleration of their bounce off morning lows after today's strong $13 bln 20-yr bond reopening. The just completed sale drew a high yield of 4.506%, which stopped through the when-issued yield by 1.2 basis points while the bid-to-cover ratio (2.73x) was comfortably above average (2.60x). Indirect takedown (63.6%) was a bit below average (66.6%) bit direct bidders picked up the slack. With the post-auction bid, Treasuries are now threatening their opening highs.
• Yield Check:
  • 2-yr: -1 bp to 3.45%
  • 3-yr: -1 bp to 3.45%
  • 5-yr: -1 bp to 3.56%
  • 10-yr: -1 bp to 3.96%
  • 30-yr: -1 bp to 4.54%