10-Year T-Note Futures Market News and Commentary
Sep 10-year T-notes (ZNU19) on Thursday closed down -7.5 ticks and the 10-year T-note yield rose by +2.2 bp to 1.611%. Sep T-notes fell back Thursday on negative carry-over from weak European bonds along with hawkish Fed comments. Hawkish comments today from Kansas City Fed President George weighed on T-notes when she said the U.S. economy "doesn't need more accommodation without seeing an outlook that suggests the economy is getting weaker." Also, Philadelphia Fed President Harker said, "the labor market is strong, and inflation is moving up slowly" and that he's "on hold" right now for further Fed rate cuts. Weakness in European bond markets weighed on T-notes Thursday. The 10-year German bund yield on Thursday rose to a 1-week high of -0.617% after data showed that the Eurozone Aug Markit manufacturing PMI unexpectedly rose +0.5 to 47.0, stronger than expectations of -0.3 to 46.2. The 10-year UK gilt yield on Thursday rose to a 2-week high of 0.534% on reduced safe-haven demand on optimism about a Brexit deal after comments Thursday from Chancellor Merkel and French President Macron suggest there may be a solution to the Brexit impasse. Global economic concerns were a positive for government bond prices Thursday after the minutes of the July 24-25 ECB meeting said policy makers agreed the Eurozone's economic slowdown was likely to be more protracted than expected and that the prospects for global trade "remained poor." Thursday's U.S. economic data was mixed for T-notes after weekly initial unemployment claims fell -12,000 to 209,000, showing a stronger labor market than expectations of -4,000 to 216,000, which is hawkish for Fed policy. However, the Aug Markit manufacturing PMI unexpectedly fell -0.5 to 49.9, weaker than expectations of +0.1 to 50.5 and the first time that manufacturing activity contracted in nearly 10 years, which is dovish for Fed policy. U.S./China trade tensions remain high, which is positive for T-notes, after the yuan fell to a new 11-1/4 year low against the dollar Thursday at 7.0965 yuan/USD. The yuan recovered slightly, but still finished the day down -0.34% at 7.0866 yuan/USD. U.S. inflation expectations moved slightly higher Thursday as the 10-year T-note breakeven inflation expectations rate rose +0.5 bp to 1.548%, stabilizing above Wednesday's 2-3/4 year low of 1.529%.