Bond Market Update from

11:53 am - Treasuries Continue to Climb:

  • Treasuries linger near their best levels of the day
  • Aggressive buying across the complex has most yields lower by close to -9bps.
  • Up front, the 2Y is down -5.9bps @ 0.520%. Today's bid puts support in the 0.500% area in focus.
  • In the belly, the 5Y is -9.5bps @ 1.684%. The yield has pressed to its lowest level in three weeks with support in the 1.650% area moving into focus. The 50, 100, and 200 dmas lurk in the vicinity. 
  • The 10Y trades -9bps @ 2.418%. Today's aggressive bid has flushed the benchmark yield below the 50 dma with action now more than -20bps off the September highs.
  • The 30Y continues to lag, -7.7bps @ 3.135%. Minor support in the area is all that stands in the way of a retest of the late-August lows near 3.050%. 
  • Curve flattening continues as the 2-10-yr spread trades tighter @ 190bps.
  • Precious metals are on their best levels of the day with gold +$7 @ $1219 and silver +$0.33 @ $17.39.

11:41 am - ECB, Jobs On Deck: The Dollar Index saw a fair share of profit taking this morning as U.S. economic data came in light of expectations. ADP was able to outpace expectations but the miss in the Markit PMI, the ISM and Construction Orders overshadowed the jobs number. The DXY would tumble from the 86.10 area to 85.80 before finding support. We are now seeing a V-shaped bounce as it rallied back to 86. With the ECB tomorrow and jobs Friday we may see currency markets take a small breather here following a volatile morning. 

  • The euro continues its decline as markets await tomorrow's ECB meeting. Manufacturing surveys were also weak with Germany seeing a notable slip below the key 50 expansion level, signalling that the country's economy was in contraction for the first time in 15 months. The euro was able to briefly rally back above 1.26 on the dollar profit taking but has reversed course and is back in the 1.25s. Tomorrow, Mario Draghi will need to impress markets with further details on the ABS program. There is also hope that the central bank will discuss sovereign bonds but this may be more of a pipe dream as yields remain extremely low (a 10-year German auction saw yields under 1% this morning) and the political will remains in serious question. 
  • The pound continues to roll as it dipped back into the 1.61 area for the first time in three weeks. The recent current account deficit and weakening Euro area is having an impact on the pound which should test its recent multi-month lows of 1.6050 in coming sessions.
  • The yen continues to hover near multi-year lows and tested the 110 level for support for the first time in six years. This will be a closely watched psyche level moving forward.

10:07 am - Data Reaction II:

  • Treasuries climbed to their best levels of the session as equities saw heavy selling in the opening minutes of trade, and are pressing their best levels of the session in response to the dismal ISM Index (56.6 actual v. 58.5 expected, 59.0 previous) and construction spending (-0.8% actual v. +0.4% expected) data.
  • Aggressive buying is having the biggest impact on the belly as the 5Y trades -8.1bps @ 1.698%. 
  • The 10Y is down -7.9bps @ 2.429% with the benchmark yield pressing to a three-week low. 
  • The long end lags with the 30Y -6.4bps @ 3.148%. The 30Y is lower for the eighth time in ten days. 
  • A slightly flatter curve persists as the 2-10-yr spread trades 190.5bps. 
  • Precious metals are on their highs with gold +$6 @ $1218 and silver +$0.24 @ $17.30.

8:23 am - Data Reaction

  • Treasuries have seen steady buying over the course of the morning and have pressed to session highs following the better than expected ADP Employment Report (214K actual v. 202K expected). 
  • Early strength has longer dated yields lower by close to -4bps with the 10Y down to 2.466%. 
  • A flatter curve persists as the 2-10-yr spread trades 191.5bps. 
  • Precious metals have climbed into positive territory with gold +$2 @ $1214 and silver +$0.04 @ $17.10. 
  • ISM Index and construction spending are due out at 10am ET.

7:55 am - European Yields

  • Yields press lower across Europe as traders await tomorrow's European Central Bank rate decision and Mario Draghi press conference. 
  • German Bunds hold small gains following today's 10Y auction. The auction was the first to draw a sub-1.00% yield (0.93%), but saw weak demand as the bid/cover came in at 1.1x.
  • UK Gilts are bid following the weakest Manufacturing (PMI 51.6 actual v. 52.6 expected, 52.2 previous) print since June 2013. A -3bp decline has the 10Y @ 2.385%, a three-week low. 
  • French OATs hold small gains amid a mostly uneventful session. The 10Y is lower by -2bps @ 1.270%.
  • Spanish Bonos are sharply higher as money pours in ahead of tomorrow's ECB meeting. Today's strong Manufacturing PMI (52.6 actual v. 52.3 expected, 52.8 previous) number has helped attract flows with the 10Y down -8bps @ 2.080%. 
  • Italian BTPs sport modest gains following the better than expected Manufacturing PMI (50.7 actual v. 49.4 expected, 49.8 previous) that saw the reading move back into expansion. The 10Y is off -4bps @ 2.305% ahead of tomorrow's ECB meeting.

7:12 am - Yen Weakens Below 110.00:

  • The Dollar Index continues its assault on multi-year highs as trade holds just shy of yesterday's highs near 86.20.
  • The three-month rally has seen the Index climb almost 8% to its best levels since July 2010.
  • EURUSD is -30 pips @ 1.2600 as action flirts with a fresh two-year low. Today's weakness in the single currency comes despite both Italian (50.7 actual v. 49.4 expected, 49.8 previous) and Spanish (52.6 actual v. 52.3 expected, 52.8 previous) Manufacturing PMI outpacing estimates. All eyes remain on tomorrow's European Central Bank rate decision and accompanying Mario Draghi press conference as traders await details on the recently announced ABS purchases, as well as the potential for a sovereign bond buying scheme.
  • GBPUSD is -20 pips @ 1.6195 as sellers look to remain in control for a sixth straight day. Today's selling comes after Manufacturing PMI (51.6 actual v. 52.6 expected, 52.2 previous) dipped to its lowest level since June 2013. The September lows in the 1.6050/1.6100 area remain under close watch.
  • USDCHF is +35 pips @ .9585 as early strength has the pair on track for its best close in 14 months. Today's selling has been aided by the drop in SVME PMI (50.4 actual v. 52.1 expected, 52.9 previous), but trade still remains tightly correlated to the euro. 
  • USDJPY is +25 pips @ 109.85 as buyers fight to remain in control for a fourth day. An overnight bid developed following the mixed Tankan Manufacturing (13 actual v. 10 expected, 12 previous) and Tankan Non-Manufacturing (13 actual v. 17 expected, 19 previous) Surveys, running the pair above 110.00 for the first time since August 2008. However, steady selling over the course of the morning has pushed action back below the psychological hurdle. 
  • AUDUSD is -50 pips @ .8700 as trade presses to a fresh seven-month low. Overnight selling dropped the hard currency below .8665 before buyers once again emerged in defense of key support. China's Manufacturing PMI held in-line at 51.1. Chinese banks were closed for Golden Week
  • USDCAD is +10 pips @ 1.1205 as trade grinds higher for the eighth time in nine days. The recent streak puts the March highs in focus with a move through the 1.1250 region marking the best level since July 2009.

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6:44 am - Treasuries Catch Early Bid:

  • Treasuries hold small gains ahead of the cash open. 
  • Overnight action saw its usual 3bp range. 
  • Up front, the 2Y holds -1.2bps @ 0.567%. Action continues to struggle in its attempt to break through the 0.600% level. 
  • In the belly, the 5Y is -3.2bps @ 1.748%. Support in the area has held up in each of the past six sessions, but remains under pressure. 
  • The 10Y trades -2.6bps @ 2.482%. The early bid has pushed the benchmark yield back below the psychologically important 2.500% level and has action testing support and the 50 dma. 
  • The long bond lags, -1.6bps @ 3.196%. Yesterday's bid produced just the second gain in the past nine sessions, and ran the yield off a three-week low.
  • A flatter curve has developed amid the early bid with the 2-10-yr spread tighter @ 191.5bps.
  • Precious metals are off their worst levels, but remain in the red, as gold trades -$2 @ 1210 and silver holds -$0.03 @ $17.02.
  • Data: MBA Mortgage Index (7), ADP Employment Change (8:15), ISM Index, construction spending (10), and auto/truck sales (14).

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