Bond Market Update

Dialing back the angst

• Following yesterday's closure for Columbus Day, U.S. Treasuries are little changed from Friday's cash settlement levels. Repots that Israel is likely to limit its retaliation on Iran to military targets has eased some of the geopolitical angst, evidenced by a notable decline in WTI and Brent crude futures prices. A separate report from The Wall Street Journal that China's stimulus aim is to avert a financial crisis, and not massively stimulate demand, has also played a part in the decline in oil futures and other commodity prices. That has been mildly supportive for Treasuries by lessening some of the festering inflation angst related to those stimulus efforts and a wave of rate cuts from leading central banks. Stocks are on course for a mixed open despite a round of better-than-expected results from the likes of Goldman Sachs (GS), Johnson & Johnson (JNJ), UnitedHealth (UNH), and Bank of America (BAC).

• Yield check:
  • 2-yr: +1 bp to 3.95%
  • 3-yr: +1 bp to 3.87%
  • 5-yr: +1 bp to 3.89%
  • 10-yr: +1 bp to 4.08%
  • 30-yr: unch at 4.38%
• News:
  • The Wall Street Journal reported that President Xi's intention is to prevent a financial crisis but not massively stimulate demand
  • Israel Prime Minister Benjamin Netanyahu told US that Israel will not strike oil or nuclear targets in Iran, but will strike military targets in Iran, according to Washington Post
  • The Biden administration mulling capping exports of Nvidia (NVDA) and AMD (AMD) chips to certain nations, according to Bloomberg
  • Caixin reports that China is considering a plan to issue up to CNY6 trillion ($846 billion) in ultra long-term bonds over three years to help local governments deal with off-balance sheet debt
  • Prime Minister Ishiba highlighted a supplementary budget for FY25 that would boost funds supporting an economic package
  • Vice President Kamala Harris announces proposals for black men and their families; will provide 1 million forgivable loans up to $20,000 to black entrepreneurs; Legalize marijuana at the federal level; Supporting a regulatory framework for cryptocurrency (all of this requires congressional approval)
  • France and Spain's final September CPI readings maintained their monthly deflation print, furthering the market's view that the ECB will cut rates again this week
  • The UK saw a dip in its unemployment rate for August, but a larger than expected increase in its claimant count
  • Germany's October ZEW Economic Sentiment 13.1 (expected 10.2; last 3.6)
• Commodities:
  • WTI crude: -4.0% to $70.90/bbl
  • Gold: +0.1% to $2669.10/ozt
  • Copper: -1.4% to $4.34/lb
• Currencies:
  • EUR/USD: -0.1% to 1.0903
  • GBP/USD: +0.2% to 1.3085
  • USD/CNH: +0.4% to 7.1254
  • USD/JPY: -0.3% to 149.32
• The Day Ahead:
  • 08:30 ET: October NY Fed Empire State Manufacturing (Briefing.com consensus 2.0; prior 11.5)
  • 11:30 ET: San Francisco Fed President Daly (FOMC voter)
  • 13:00 ET: Fed Governor Kugler (FOMC voter)