MNI ASIA OPEN: Ylds Surge on Poor Bond Sale, Fed Stays Course

US TSYS Ylds Climb After Poor 30Y Demand, Powell Reiterates Fed Mandate

• Treasury yields gapped higher after poor demand for Tsy $24B 30Y Bond sale tailed Thursday: 10Y 4.6498% high (+.1573), 30Y tapped 4.8312% high before settling back in at 4.7732 % (+.1583) after the bell.
• Rates had attempted a rebound in the minutes after the auction, but remained elevated as comments from Fed Chairman Powell at an IMF conference were deemed hawkish. In actuality, however, Powell comments were very much in line with post FOMC presser:
• The Fed "is committed to achieving a stance of monetary policy that is sufficiently restrictive to bring inflation down to 2% over time; we are not confident that we have achieved such a stance," Powell said. The Fed will "move carefully" so that the central bank can address the risk of being misled by a few good months of data, and the risk of overtightening, he said.
• Generally muted react ro comments from Federal Reserve Bank of Richmond President Tom Barkin at an MNI Webcast earlier: he is not yet convinced inflation is on a path to 2% but is uncertain whether the Fed has to do more to slow the economy further.
• Treasury futures extend lows after $24B 30Y auction (912810TV0) tails 5.2bp: 4.769% high yield vs. 4.717% WI; 2.24x bid-to-cover vs. 2.35x in the prior month. Indirect take-up 60.11% vs. 65.13% prior; direct bidder take-up 15.16% vs. 16.71% prior; primary dealer take-up 24.73% vs. 18.17%.
• Little react to early data: initial claims were close to expectations with a seasonally adjusted 217k (cons 218k) in the week to Nov 4 after another slightly upward revised 220k (initial 217k).

US

FED: The Federal Reserve will not hesitate to tighten monetary policy further if recent progress on inflation turns out to be a "head fake" or if stronger growth prevents further balancing in the labor market and undermines inflation progress, Fed Chair Jerome Powell said Thursday.

• The Fed expects GDP growth to moderate in coming quarters, but "that remains to be seen," he said in prepared remarks. "We are attentive to the risk that stronger growth could undermine further progress in restoring balance to the labor market and in bringing inflation down, which could warrant a response from monetary policy."
• The Fed "is committed to achieving a stance of monetary policy that is sufficiently restrictive to bring inflation down to 2% over time; we are not confident that we have achieved such a stance," Powell said. The Fed will "move carefully" so that the central bank can address the risk of being misled by a few good months of data, and the risk of overtightening, he said.
• The Fed has been gratified by the decline in inflation but there is still a long way to go to get inflation sustainably to 2%, he said. The labor market remains tight, although improvements in labor supply and a gradual easing in demand continue to move it into better balance. For more see MNI Policy main wire at 1401ET.

FED: Federal Reserve officials are trying to figure out whether they have raised interest rates enough to put inflation on a sustainable path back to its 2% target, Fed Chair Jerome Powell said Thursday.

• "We’re trying to make a judgement about whether we need to more," Powell said during a Q&A session at the IMF, where he also gave opening remarks. The fed funds rate is around 5.3% and if expected one-year ahead inflation is around 3%, that implies a real rate above 2%, well above mainstream estimates of the neutral rate, and "probably significantly restrictive," Powell said. (See MNI: Fed's Barkin Not Yet Convinced Inflation On Path To 2%)
  
• The Fed is paying close attention to the recent spike in long-run bond yields but does not yet need to decide whether the tightening of financial conditions it represents will affect the course of monetary policy, Powell said. "We’re going to be looking at this question. It's not something we’re trying to make a decision on now."

FED: Federal Reserve Bank of Richmond President Tom Barkin told an MNI Webcast on Thursday he is not yet convinced inflation is on a path to 2% but is uncertain whether the Fed has to do more to slow the economy further.

• "Whether a slowdown that settles inflation requires more from us remains to be seen, which is why I supported our decision to hold rates at our last meeting," he said in prepared remarks. "With rates restrictive and financial conditions tightened, we have time to reconcile competing narratives on demand and to test different views on the trajectory of inflation."
• "I’m not yet convinced that inflation is on a smooth glide path down to 2%. The inflation numbers have come down, but much of the drop has been the partial reversal of COVID-19-era goods price increases driven by elevated demand and supply shortages," he said. "We’ve come a long way quickly, but the job isn’t done." For more see MNI Policy main wire at 1107ET.

FED: Richmond Fed President Tom Barkin told an MNI Webcast on Thursday inflation may be harder to tame than some expect, though some effects of higher interest rates have yet to be felt.

• "There's more lag to come from hikes," he said in Q&A. "I also believe that inflation is going to take longer to settle than the more optimistic forecasts that you might see. So that's my challenge: I think there's more to come and I think there's more inflation to come, so I'm just trying to balance those two."
• If progress on disinflation stalls, the Fed president said he could support additional rate hikes.
• "If you start seeing a return to elevated inflation, then that makes me start thinking that we need to look hard at whether we need to do more, particularly if demand is strong," he said, adding he can't call the Fed's stance sufficiently restrictive when growth came in at 4.9% last quarter. For more see MNI Policy main wire at 1301ET.

OVERNIGHT DATA

US DATA: Initial claims were close to expectations with a seasonally adjusted 217k (cons 218k) in the week to Nov 4 after another slightly upward revised 220k (initial 217k).

• The four-week average increased 1k to 212k, still slowly increasing from the 206k in mid-October which marked the lowest since Feb. The 2019 average for initial claims was 218k.
• Continuing claims meanwhile saw another larger than expected increase to 1834k (cons 1820k) in the week to Oct 28 after a downward revised 1812k (initial 1818k). It has seen a sizeable push in recent weeks and is moving closer to ytd highs of 1861k from April.
• With continuing claims continuing to push further above the 2019 average of 1699k vs initial entries at or still slightly below those averages, it’s likely a sign of a further moderation in the pace of hiring/labor market churn.

MARKETS SNAPSHOT

• Key market levels of markets in late NY trade:
• DJIA down 186.65 points (-0.55%) at 33924.82
• S&P E-Mini Future down 33.25 points (-0.76%) at 4366.75
• Nasdaq down 120.6 points (-0.9%) at 13529.69
• US 10-Yr yield is up 12.8 bps at 4.6201%
• US Dec 10-Yr futures are down 24.5/32 at 107-18
• EURUSD down 0.0035 (-0.33%) at 1.0675
• USDJPY up 0.3 (0.2%) at 151.27
• WTI Crude Oil (front-month) up $0.15 (0.2%) at $75.48
• Gold is up $9.5 (0.49%) at $1959.90
• European bourses closing levels:
• EuroStoxx 50 up 50.71 points (1.21%) at 4229.2
• FTSE 100 up 53.95 points (0.73%) at 7455.67
• German DAX up 122.94 points (0.81%) at 15352.54
• French CAC 40 up 79.5 points (1.13%) at 7113.66

US TREASURY FUTURES CLOSE

• 3M10Y +14.148, -81.188 (L: -96.866 / H: -78.475)
• 2Y10Y +3.946, -40.43 (L: -44.977 / H: -34.466)
• 2Y30Y +6.056, -26.084 (L: -31.397 / H: -16.508)
• 5Y30Y +1.51, 12.244 (L: 11.166 / H: 19.887)
• Current futures levels:
• Dec 2-Yr futures down 5.125/32 at 101-9.5 (L: 101-09.125 / H: 101-15.625)
• Dec 5-Yr futures down 14.5/32 at 105-4 (L: 105-02.25 / H: 105-22)
• Dec 10-Yr futures down 24.5/32 at 107-18 (L: 107-14 / H: 108-17)
• Dec 30-Yr futures down 1-22/32 at 113-4 (L: 112-12 / H: 115-12)
• Dec Ultra futures down 2-03/32 at 117-5 (L: 115-28 / H: 120-04)

US 10Y FUTURE TECHS: (Z3) Holding On To The Bulk Of Its Recent Gains

• RES 4: 110-07+ High Sep 14
• RES 3: 110-00 Round number resistance
• RES 2: 109-20 High Sep 19
• RES 1: 108-25 High Nov 3
• PRICE: 108-05 @ 11:26 GMT Nov 9
• SUP 1: 107-08 20-day EMA
• SUP 2: 105-27+/105-10+ Low Nov 1 / Low Oct 19 and bear trigger
• SUP 3: 105-01+ 2.0% 10-dma envelope
• SUP 4: 104-26 2.00 proj of the Jul 18 - Aug 4 - Aug 10 price swing

Treasuries continue to trade closer to their recent highs and a short-term uptrend remains intact. Recent gains have resulted in a move above the 50-day EMA, at 108-01+ and 108-16, the Oct 12 high and a key resistance, has been pierced. A clear break of this 108-16 hurdle would strengthen a bullish case and signal scope for a climb towards 109-20, the Sep 19 high. Initial support lies at 107-08, the 20-day EMA.

SOFR FUTURES CLOSE

• Current White pack (Dec 23-Sep 24):
• Dec 23 -0.015 at 94.595
• Mar 24 -0.050 at 94.665
• Jun 24 -0.075 at 94.885
• Sep 24 -0.090 at 95.165
• Red Pack (Dec 24-Sep 25) -0.11 to -0.10
• Green Pack (Dec 25-Sep 26) -0.11 to -0.105
• Blue Pack (Dec 26-Sep 27) -0.125 to -0.115
• Gold Pack (Dec 27-Sep 28) -0.13 to -0.13

SHORT TERM RATES

SOFR Benchmark Settlements:

• 1M -0.00014 to 5.32119 (-0.00057/wk)
• 3M +0.00195 to 5.37103 (-0.00914/Wk)
• 6M +0.00189 to 5.39896 (-0.02693/wk)
• 12M +0.00646 to 5.28136 (-0.04454/Wk)

• Daily Effective Fed Funds Rate: 5.33% volume: $101B
• Daily Overnight Bank Funding Rate: 5.32% volume: $246B

• Secured Overnight Financing Rate (SOFR): 5.32%, $1.470T
• Broad General Collateral Rate (BGCR): 5.30%, $589B
• Tri-Party General Collateral Rate (TGCR): 5.30%, $579B
• (rate, volume levels reflect prior session)

FED REVERSE REPO OPERATION

The NY Fed Reverse Repo operation usage falls to new two year low of $993.314B (lowest level since August 2021) w/94 counterparties vs. $1,024.451B in the prior session. Today's usage compares to prior two year low of $1,008,685B from Nov 7.

PIPELINE Corporate Bond Issuers Sidelined Thursday

Scant $1.5B Priced Thursday

• Date $MM Issuer (Priced *, Launch #)
• 11/09 $1B *OMERS Finance 10Y SOFR+135
• 11/09 $500M *Polaris +5Y +255

EGBs-GILTS CASH CLOSE: Long End Surrenders Some Recent Gains

Bunds and Gilts weakened marginally Thursday, with both the German and UK curves twist steepening as long-end instruments gave up some of the strong gains of the previous two sessions.

• Price action was fairly limited after weakness in the morning, with few Europe-specific drivers on the day, and UK and German curve movements were roughly in line with Treasuries. Despite no European gov't bond issuance, the longer end was pulled down by US counterparts, ahead of a 30Y Treasury auction.
• Speakers were the focus, with BoE's Pill making more hawkishly-perceived comments on rates relative to Monday's appearance in which he appeared to open the door to a late 2024 rate cut (though as MNI noted, the central thrust of his remarks was similar).
• ECB speakers have had little discernable market impact: Guindos and Villeroy both adding to colleagues' recent commentary that rate cut discussion is premature, with Villeroy emphasizing though that rates won't rise further absent shocks or surprises.
• ECB's Lagarde speaks after the cash close, with attention then turning to UK activity/GDP data first thing Friday, followed by Italian supply.

Closing Yields / 10-Yr Periphery EGB Spreads To Germany

• Germany: The 2-Yr yield is down 0.9bps at 3.006%, 5-Yr is up 0.8bps at 2.577%, 10-Yr is up 3bps at 2.647%, and 30-Yr is up 7bps at 2.883%.
• UK: The 2-Yr yield is down 0.2bps at 4.618%, 5-Yr is up 1.1bps at 4.253%, 10-Yr is up 3.3bps at 4.273%, and 30-Yr is up 4.1bps at 4.732%.
• Italian BTP spread up 0.1bps at 186.4bps / Portuguese PGB down 1.2bps at 73.3bps

FOREX Greenback Advances Post Powell, UK GDP Awaits Friday

• After paying little attention to the uptick in US yields throughout Thursday’s session, 30-year auction results and a slightly hawkish Fed’s Powell have provided a firm bid for the greenback as we approach the APAC crossover. The USD index had held a fairly narrow range across the majority of Us hours, however, now stands with 0.3% gains on the day and is notably higher than the pre-NFP level from last Friday.
• Trading in sympathy with the broader dollar index, EURUSD quickly slipped to fresh lows although is yet to break the cluster of lows around 1.0660, just above the pre-NFP data level at 1.0655. More notable support is at 1.0629, the 20-day EMA.
• GBP and AUD were laggards on the session, falling around 0.45% against the greenback as the move higher for US yields eventually filtered through to weakness for major equity benchmarks and weighed on more risk sensitive currencies.
• This sentiment more heavily impacted some emerging market currencies with the likes of USDZAR extending losses above 1% and USDMXN rising 1.5%. The latter was also aided by a small language tweak to the guidance from the Mexican central bank, bolstering a dovish reaction.
• UK GDP data will be in focus on Friday before potential comments from ECB President Lagarde. In the US, preliminary UMich data on consumer sentiment and inflation expectations will take focus.

FRIDAY DATA CALENDAR

Date	GMT/Local	Impact	Flag	Country	Event
10/11/2023	0700/0700	**		UK	UK Monthly GDP
10/11/2023	0700/0700	**		UK	Index of Services
10/11/2023	0700/0700	***		UK	Index of Production
10/11/2023	0700/0700	**		UK	Trade Balance
10/11/2023	0700/0700	**		UK	Output in the Construction Industry
10/11/2023	0700/0800	*		NO	CPI Norway
10/11/2023	0700/0800	**		SE	Private Sector Production m/m
10/11/2023	0700/0700	***		UK	GDP First Estimate
10/11/2023	0900/1000	*		IT	Industrial Production
10/11/2023	1230/1330			EU	ECB's Lagarde fireside chat with Martin Wolf
10/11/2023	1230/0730			US	Dallas Fed's Lorie Logan
10/11/2023	-	***		CN	Money Supply
10/11/2023	-	***		CN	New Loans
10/11/2023	-	***		CN	Social Financing
10/11/2023	1400/0900			US	Atlanta Fed's Raphael Bostic
10/11/2023	1500/1000	**		US	U. Mich. Survey of Consumers
10/11/2023	1900/1400	**		US	Treasury Budget