Bond Market Update

Treasuries Slide as December Cut Comes Into Question

• U.S. Treasuries retreated on Wednesday after three days of largely uneventful action. The midweek retreat accelerated after the market received the latest FOMC Statement, even though the directive was right in line with expectations. Treasuries started the day with modest losses, followed by a sideways drift near their starting levels. The quiet start followed a night that featured the release of a relatively hot CPI report from Australia and a solid Q3 GDP reading from Spain. Treasuries spent early trade near their lows from Tuesday, extending their losses after the FOMC released its policy Statement for October. As expected, the Statement called for a 25-basis point reduction to the fed funds rate range and it noted that quantitative tightening will come to an end on December 1. During his press conference, Fed Chairman Powell said that the Fed still sees policy as modestly restrictive and he cautioned against assuming that another rate cut will be made in December, which kept Treasuries pressured into the close. Accordingly, the implied likelihood of another cut before the end of the year fell to 65.2% from 90.9% that was seen yesterday. Crude oil climbed toward $60.50/bbl while the U.S. Dollar Index rose 0.6% to 99.21.
• Yield Check:
  • 2-yr: +9 bps to 3.58%
  • 3-yr: +9 bps to 3.59%
  • 5-yr: +8 bps to 3.70%
  • 10-yr: +8 bps to 4.06%
  • 30-yr: +5 bps to 4.60%

• News:
  • A major food distributor in China reportedly purchased a considerable amount of U.S. soybeans ahead of President Trump's meeting with China's President Xi.
  • The Wall Street Journal reported that the U.S. is likely to reduce the fentanyl-related tariff on imports from China.
  • Expectations for a rate cut from the Reserve Bank of Australia collapsed after the release of hotter-than-expected CPI for Q3.
  • Japan's October Household Confidence rose to 35.8 from 35.3 (expected 35.5).
  • Australia's Q3 CPI was up 1.3% qtr/qtr (expected 1.1%; last 0.7%), rising 3.2% yr/yr (expected 3.0%; last 2.1%). Q3 Trimmed Mean CPI was up 1.0% qtr/qtr (expected 0.8%; last 0.6%), rising 3.0% yr/yr (expected 2.7%; last 2.7%). Monthly CPI Indicator was up 3.5% yr/yr (expected 3.1%; last 3.0%).
  • U.K.'s September BoE Consumer Credit reached GBP1.491 bln (last GBP1.749 bln). September Mortgage Approvals reached 65,940 (expected 64,000; last 64,960) and September net Lending to Individuals hit GBP7.00 bln (expected GBP5.60 bln; last GBP6.00 bln).
  • Italy's September non-EU trade surplus reached EUR2.47 bln (last surplus of EUR1.88 bln).
  • Spain's Q3 GDP expanded 0.6% qtr/qtr, as expected (last 0.8%), growing 2.8% yr/yr (expected 3.0%; last 3.1%). September Retail Sales rose 4.2% yr/yr (last 4.7%).
  • Swiss October ZEW Expectations rose to -7.7 from -46.4.
• Today's Data:
  • Pending Home Sales were unchanged in September (Briefing.com consensus 1.2%) after increasing 4.2% (revised from 4.0%) in August.
  • The weekly MBA Mortgage Index rose 7.1% after decreasing 0.3% a week ago. The Purchase Index was up 4.5% while the Refinance Index rose 9.3%.
  • Weekly crude oil inventories decreased by 6.858 mln barrels after decreasing by 961,000 barrels a week ago.
• Commodities:
  • WTI crude: +0.5% to $60.46/bbl
  • Gold: +0.4% to $4000.50/ozt
  • Copper: +1.7% to $5.26/lb
• Currencies:
  • EUR/USD: -0.5% to 1.1590
  • GBP/USD: -0.9% to 1.3155
  • USD/CNH: +0.1% to 7.0981
  • USD/JPY: +0.5% to 152.85
• The Day Ahead:
  • 8:30 ET: Advance Q3 GDP (Briefing.com consensus 3.0%; prior 3.8%), advance Q3 GDP Deflator (Briefing.com consensus 2.7%; prior 2.1%), weekly Initial Claims (Briefing.com consensus 257,000; prior NA), and Continuing Claims (prior NA)
  • 10:30 ET: Weekly natural gas inventories (prior +87 bcf)