Bond Market Commentary

Over in bond land, Treasury yields are mixed before the opening bell Thursday ahead of today’s meeting between U.S. President Donald Trump and Chinese President Xi Jinping as part of Xi’s three-day state visit. Investors are also awaiting August new home sales data and the latest weekly unemployment claims report. As of 6:54 AM ET, the yield on the 10-year note is rising one basis point (0.01%) to 5.12%, while the 30-year bond yield is increasing three basis points (0.03%) to 5.43%. The yield on the two-year note, which is more sensitive to changes in monetary policy, is down three basis points (0.03%) to 4.87%. 

Treasury yields were significantly higher on Wednesday as S&P Global’s preliminary September purchasing managers’ indexes (PMIs) came in much stronger than expected, fueling market expectations for Federal Reserve (Fed) rate hikes. The manufacturing, services, and composite PMIs unexpectedly rose to 57.0, 58.7, and 58.4, respectively. Markets also assessed continued hawkish commentary from Fed officials. The yield on the 10-year note was up 15 basis points (0.15%) to 5.11%, while the 30-year bond yield rose 10 basis points (0.10%) to 5.40%. The yield on the two-year note increased 15 basis points (0.15%) to 4.90%.

On the data front, the U.S. current account balance for the second quarter is expected to show a deficit of $257.4 billion, compared to the previous quarter’s deficit of $226.8 billion. Initial jobless claims for the week ending September 19 are expected to come in at 200,000, lower than the prior week’s 196,000, while continuing claims are expected to come in at 1.74 million for the week ending September 12, up from the prior week’s 1.73 million. Meanwhile, new home sales are projected to have been at an annualized 616,000 pace in August versus the prior month’s 607,000 pace. The Kansas City Fed will release their Manufacturing Survey for September, with the composite index expected to come in at 9, down from the prior month’s 10. The finalized reading of August building permits will be released today, with the preliminary reading showing an annualized 1.35 million corresponding to a month-over-month decrease of 2.7%.

In the auction space, the U.S. Treasury is set to issue $90 billion in four-week bills, $85 billion in eight-week bills, and $44 billion in seven-year notes.

In the central bank space, Richmond Fed President Tom Barkin, Cleveland Fed President Beth Hammack, Philadelphia Fed President Anna Paulson, and New York Fed President John Williams are scheduled to speak today.

The Bloomberg 30-day visible supply fell $2.413 billion to $19.935 billion on Wednesday, above the 12-month average of $15.224 billion.

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