Lots of US eco data before Thanksgiving holiday

Rates

Minor upward bond bias despite surprises

Global core bonds profited only slightly from negative risk sentiment on stock markets, nurtured by Turkish Air Force gunning down a Russian jet, as European investors still reeled from Monday’s sell-off and as markets concluded soon that the incident would not escalate the relationship between Russia and NATO to a dangerous level. Eco data comprised a strong German IFO business sentiment survey, in line US Q3 GDP, a much weaker than expected US consumer confidence and a marginally weaker Richmond Fed business sentiment. However, these eco releases attracted only a lukewarm, temporary, reactions. The US 5-yr Note auction was decent (see below). A rebound in oil/commodity prices and a recovery of US equities dampened the positive effect of the earlier risk-off sentiment. In a daily perspective, changes on the US yield curve were less than 1 bp. The German yield curve bear flattened with the 2-yr yield up 1.3 bps and the 10-yr yield down 1.2 bps. The 2- and 5-yr yields set an new intraday record low at -0.41% and -0.17% respectively. On intra-EMU bond markets, 10-yr yield spreads versus Germany were nearly unchanged.

Lots of US eco data before Thanksgiving holiday

October personal income is expected to have increased a strong 0.4% M/M, following an increase of 0.1% M/M in September, due to stronger AHE and strong payrolls growth. That’s why we see some upside risks to the consensus.
Personal spending (PCE) is expected to have increased 0.3% M/M in October, following a 0.1% M/M increase in September. The Core PCE is expected to remain stable at 0.1% M/M, but rise slightly on an annual basis from 1.3% Y/Y to 1.4% Y/Y. The real personal spending is expected to have grown 0.2% M/M, similar to September. Also on the agenda are the October durable goods orders, which are expected to have increased by 1.6% M/M, following a decline of -1.2% M/M. Excluding transportation, the durable goods orders are expected to have increased 0.3% M/M. We see some upward risks to durable goods as orders were heavily influenced by weakness related in civilian aircraft orders last month. The weekly initial jobless claims are expected to have stabilized around 270k. The Markit US services PMI is expected to improve from 54.8 to 55.1 in November. We side with consensus, even as the manufacturing survey disappointed. Lastly, the University of Michigan consumer confidence indicator for November is expected to remain stable at 93.1. The upcoming holiday period, with current low gasoline prices points to upside risks, but yesterday’s extremely weak Consumer Confidence makes us side with consensus.

Germany, Portugal and US tap market

The German Finanzagentur taps the on the run 10-yr Bund today (€3B 1% Aug2025). In recent history, Bund auctions went very sloppy. Total bids averaged only €3.7B at the previous 4 Bund auctions and they reached an historical low last month (€2.97B). So overall, we expect weak demand today as well despite the low amount on offer. The Portuguese treasury sells the on the run 10-yr PGB (€0.75-1B 2.875% Oct2025). The bond didn’t really cheapen in ASW-spread terms and trades rich at the longer end of the Portuguese yield curve. Together with current political instability, this could hamper demand. The Portuguese treasury will use the proceeds of the auction as pre-funding for next year, as it is already fully funded for this year. In the US, the Treasury continued its end-of-month refinancing operation yesterday with a sloppy $13B 2-yr FRN auction and a decent $35B 5-yr Note auction. The latter ended with a small tail, a good bid cover and solid buy-side takedown figures. Today, the US Treasury holds a $29B 7-yr Note auction. Currently, the WI trades around 2%.

Today: Technically inspired gains for US Treasuries

Overnight, most Asian stock markets trade negative with China outperforming. Minutes of the Oct 26 Fed discount rate meeting show that 9 out of 12 governors requested a discount rate hike (vs. 8 at the previous meeting), but the request wasn’t honoured. It’s the latest sign that the Fed moves closer to tightening policy, but there was no negative reaction on the US Treasury market.

Today, the eco calendar heats up in the US. We believe that the data will be in line with expectations or even better (including durable goods). That’s a negative for US Treasuries, but we expect that the impact of stronger data will be dampened by the approaching long weekend in the US (Thanksgiving/Black Friday). End-of-month extension buying and the end of the Treasury’s financing operation are two other technical factors which support US Treasuries. Risk sentiment on equity markets is a wildcard.

Technically, the fundamentals (ECB) and technicals (uptrend channel) remain bullish for the Bund. We stay cautious though and still consider some lightening of long positions especially if we would test the highs (Bund). We see, as before, little value when German 10-yr yield is below 0.50%. The T-Note future tested key 126-16 support, but no sustained break occurred. The bears probably won’t go immediately for another test.
Therefore, we hold our sell-on-upticks for US Treasuries or even lightening long positions straight away.

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