Bond Market Update

Short End Dips as Government Reopening Takes Shape

• U.S. Treasuries started the week on a lower note, pressured by signs that the government shutdown will come to an end soon, though an intraday resilient showing helped the complex recover some of its starting losses. Treasuries opened at their lowest levels of the day with the 30-yr yield revisiting last week's high after a vote in the Senate set the stage for a reopening of the government in the coming days. Treasuries followed their lower start with an immediate bounce that had the long bond back at its flat line as Wall Street opened in upbeat fashion. Shorter tenors also followed suit, but they never made it back to their flat lines. Mid-morning trade saw a shallow pullback, but overall action remained near the day's best levels, assisted by a solid $58 bln 3-yr note sale. The Treasury market will be closed for Veterans Day tomorrow, so this week's note and bond auction slate will be suspended until Wednesday, when the Treasury will hold a $42 bln 10-yr note sale, followed by a $25 bln 30-yr bond offering on Thursday. Crude oil climbed above $60/bbl while the U.S. Dollar Index spent the day near its flat line at 99.61.
• Yield Check:
  • 2-yr: +3 bps to 3.59%
  • 3-yr: +3 bps to 3.60%
  • 5-yr: +3 bps to 3.71%
  • 10-yr: +2 bps to 4.11%
  • 30-yr: UNCH at 4.70%

• News:
  • Fed Governor Miran (FOMC voter) called for a quicker pace of rate cuts, including a potential 50-basis point cut, according to CNBC.
  • The Chinese government relaxed export restrictions on some rare earth metals.
  • The Bank of Japan's latest Summary of Opinions showed that policymakers see the need for continued wage hikes from companies.
  • The European Central Bank is starting to look for a replacement for Vice President de Guindos, whose term ends in May.
  • China's October CPI was up 0.2% m/m (last 0.1%), rising 0.2% yr/yr (expected 0.0%; last -0.3%). October PPI was down 2.1% yr/yr (expected -2.3%; last -2.3%).
  • Japan's September Leading Index rose to 108.0 from 107.0 (expected 107.9) and Coincident Indicator was up 1.8% m/m (last -1.3%).
  • Australia's September Building Approvals rose 12.0% m/m, as expected (last -3.6%) and Private House Approvals rose 4.0% m/m, as expected (last -1.0%).
  • Eurozone's November Sentix Investor Confidence fell to -7.4 from -5.4 (expected -3.9).
• Today's Data:
  • $58 bln 3-year Treasury note auction results (prior 12-auction average):
    • High yield: 3.579% (3.918%).
    • Bid-to-cover: 2.85 (2.61).
    • Indirect bid: 63.0% (65.0%).
    • Direct bid: 27.3% (20.1%).
• Commodities:
  • WTI crude: +0.7% to $60.14/bbl
  • Gold: +2.8% to $4122.30/ozt
  • Copper: +2.8% to $5.10/lb
• Currencies:
  • EUR/USD: UNCH at 1.1562
  • GBP/USD: +0.2% to 1.3182
  • USD/CNH: UNCH at 7.1209
  • USD/JPY: +0.4% to 154.04
• The Day Ahead:
  • *Bond market closed for Veterans Day*
  • 6:00 ET: October NFIB Small Business Optimism (Briefing.com consensus 98.3; prior 98.8)
• Wednesday:
  • 7:00 ET: Weekly MBA Mortgage Index (prior -1.9%)
• Treasury Auctions:
  • 13:00 ET: $42 bln 10-yr Treasury note auction results