Updated: 10-20-2017

The Market at 08:24AM ET
10-Year: -13/32…2.368…
EUR/USD: 1.1817…
USD/JPY: 113.22…

Moving the Market

-- Longer-dated Treasuries dip after Senate passes budget package with 51-49 vote

-- September Existing Home Sales (Briefing.com consensus: 5.29 million; prior: 5.35 million) at 10:00 ET

08:24AM ET

Yield Tick Higher After Budget Passes Senate

  • U.S. Treasuries have faced some overnight selling after the Senate voted 51-49 in favor of a budget plan that will put lawmakers closer to taking up the issue of tax reform if the House of Representatives approves the budget plan without changes. Overseas, China's Ministry of Finance ordered ten banks to meet on October 25 to discuss the proposed offering of unrated, dollar-denominated, 5- and 10-yr notes. Japan's Finance Minister Taro Aso said that internal reserves of Japanese companies have grown too large and should be used for investments and wages.
  • Yield Check:
    • 2-yr: UNCH at 1.56%
    • 5-yr: +2 bps to 2.00%
    • 10-yr: +4 bps to 2.36%
    • 30-yr: +5 bps to 2.88%
  • News:
    • South Korea's September PPI +0.3% month-over-month (last 0.3%); +3.2% year-over-year (last 3.2%)
    • New Zealand's September External Migration & Visitors +3.1% (last 5.8%). Visitor Arrivals +0.3% month-over-month (last -0.4%) and Credit Card Spending +4.9% year-over-year (last 6.4%)
  • Data out Today:
    • September Existing Home Sales (Briefing.com consensus: 5.29 million; prior: 5.35 million) at 10:00 ET
  • Fed Speakers:
    • Cleveland Fed President Loretta Mester (FOMC voter) at 14:00 ET
    • Fed Chair Janet Yellen at 19:30 ET

10-Yr: -13/32… EUR/USD: 1.1817… USD/JPY: 113.22…

03:26PM ET

Overnight Gains Trimmed

  • U.S. Treasuries advanced on Thursday, but intraday selling pressured the market off its morning high. Treasuries climbed during overnight action, responding to a risk-off tone that weighed on most equity markets. Hong Kong's Hang Seng surrendered 1.9%, which set a defensive tone for the European session. While the Hang Seng posted its widest loss since early August, the index narrowed its 2017 gain to 28.0%, which still leaves the Hang Seng ahead of most other global equity indices. Some reports attributed the overnight weakness to comments from People's Bank of China Governor Zhou Xiaochuan, who cautioned that excessive optimism after the exhaustion of a credit expansion cycle could trigger a plunge in asset values. This concept is known as a "Minsky Moment" and it is rarely referenced by central bankers whose policy decisions have been instrumental in facilitating global credit expansion. The Institute of International Finance estimates that China's total debt exceeded 300% of GDP in the first half of 2017. A turn in sentiment took hold shortly after the start of the U.S. session, allowing the S&P 500 (-0.1%) to erase the bulk of its morning gain while Treasuries ticked down from their highs with the 10-yr yield finishing above its 200-day moving average (2.313%) after a morning buying pressured the benchmark yield beneath that mark. The 2s10s spread returned to 76 bps after ticking up to 78 bps on Wednesday.
  • Yield Check:
    • 2-yr: UNCH at 1.56%
    • 5-yr: -1 bp to 1.98%
    • 10-yr: -2 bps to 2.32%
    • 30-yr: -2 bps to 2.83%
  • News:
    • Initial claims for the week ending October 14 decreased by 22,000 to 222,000 (Briefing.com consensus 236,000), hitting their lowest level since March 31, 1973. Continuing claims for the week ending October 7 decreased by 16,000 to 1.888 million, which is the lowest level since December 29, 1973.
      • The key takeaway from this report, which saw some disruptions in claims taking procedures in Puerto Rico and the Virgin Islands, is that the low level of claims should translate into some lofty nonfarm payroll expectations for October since this report covered the week in which the household survey was conducted.
    • The Philadelphia Fed Index increased from 23.8 to 27.9 in October (Briefing.com consensus 20.0). That is the highest reading since May and comfortably above the 0.0 line that demarcates expansion and contraction in regional manufacturing activity.
      • The key takeaway from the report is that the monthly increase was led by gains in labor market indicators, with the current employment index increasing 24 points to a record-high reading of 30.6
    • The Conference Board's leading Economic Index decreased 0.2% in September (Briefing.com consensus +0.1%) following an unrevised 0.4% increase in August. The downturn in September marked the first decline in the index in over a year.
      • The key takeaway from the report is that the downturn had hurricane fingerprints on it with key negative contributions from initial claims, building permits, and the average workweek
    • $5 bln 30-yr TIPS Auction:
      • High yield: 0.908% (When-Issued: 0.910%)
      • Bid-to-cover: 2.64 (prior: 2.83)
      • Indirect bid: 76.4% (prior: 76.1%)
      • Direct bid: 0.5% (prior 8.4%)
    • $34 bln in 5-yr notes will be sold on October 25 and $28 bln in 7-yr notes will be sold on October 26
  • Commodities:
    • WTI crude: -1.4% to $51.30/bbl
    • Gold: +0.6% to $1290.00/ozt
    • Copper: UNCH at $3.18/lb
  • Currencies:
    • EUR/USD: +0.3% to 1.1830
    • USD/JPY: -0.3% to 112.67
  • Data out Friday:
    • September Existing Home Sales (prior: 5.35 million) at 10:00 ET
  • Fed Speakers:
    • Cleveland Fed President Loretta Mester (FOMC voter) at 14:00 ET
    • Fed Chair Janet Yellen at 19:30 ET

10-Yr: +5/32… EUR/USD: 1.1830… USD/JPY: 112.67…

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