Bond Market Update

Waiting to See PCE

• U.S. Treasuries had a relatively quiet overnight trade despite some hubbub involving new tariff rates announced by President Trump. Starting October 1, imported branded and generic pharmaceuticals will face a 100% tariff if a company is not building a manufacturing plant in the U.S.; kitchen cabinets, bathroom vanities, and associated products will see a 50% tariff; and upholstered furniture will have a 30% tariff rate. Market participants, however, are keying on the 8:30 a.m. ET release of the August Personal Income and Spending Report, which contains the Fed's preferred inflation gauge in the form of the PCE Price Index. This will be a market-moving report given its ability to shape investors' views about the economic outlook and inflation path that, in turn, will shape monetary policy decisions. Currently, there is an 87.7% probability of a 25-basis-point rate cut to 3.75-4.00% at the October FOMC meeting and a 63.6% probability of another 25-basis-point rate cut to 3.50-3.75% at the December FOMC meeting, according to the CME FedWatch Tool. The U.S. Dollar Index is down 0.1% to 98.42.
• Yield Check:
  • 2-yr: -1 bp to 3.65%
  • 3-yr: -1 bp to 3.65%
  • 5-yr: -1 bp to 3.76%
  • 10-yr: unch at 4.17%
  • 30-yr: -1 bp to 4.74%

• News:
  • President Trump announces new tariffs starting Oct. 1: 100% for branded and generic pharmacueticals if company is not building manufacturing plant in U.S.; 50% for kitchen cabinets, bathroom vanities, and associated products; and 30% for upholstered furniture
  • Fed Governor Lisa Cook asks Supreme Court to allow her to keep her job. NY Times
  • President Trump will not allow Israel to annex the West Bank. NY Times
  • Government shutdown seems inevitable as both sides see incentives. Republicans want a clean continuing resolution. Democrats want ObamaCare subsidies extended and $1 trillion in Medicaid cuts restored. The Hill
  • The Trump administration is considering plan to mandate 1:1 ratio for domestic semiconductor manufacturing by imposing tariffs on companies that don't comply with that ratio. WSJ
  • President Trump considering a regulatory process to force U.S. drugmakers to lower prices to match prices in other countries. NY Times
  • OPEC+ not reaching increased output targets. Reuters
  • President Trump signed an executive order saving TikTok from a ban while protecting America’s national security; TikTok U.S. will be valued at $14 billion and majority-owned by U.S. investors
• Commodities:
  • WTI crude: UNCH at $65.00/bbl
  • Gold: +0.2% to $3780.30/ozt
  • Copper: -0.5% to $4.73/lb
• Currencies:
  • EUR/USD: flat at 1.1667
  • GBP/USD: flat at 1.3349
  • USD/CNH: flat at 7.1454
  • USD/JPY: flat at 149.79
• The Day Ahead:
  • 08:30 ET: August Personal Income (Briefing.com consensus 0.3%; prior 0.4%), Personal Spending (Briefing.com consensus 0.4%; prior 0.5%), PCE Prices (Briefing.com consensus 0.3%; prior 0.2%), and Core PCE Prices (Briefing.com consensus 0.2%; prior 0.3%)
  • 10:00 ET: Final September University of Michigan Consumer Sentiment (Briefing.com consensus 55.4; prior 55.4)