10-Year T-Note Futures Market News and Commentary
Dec T-notes (ZNZ19) on Tuesday closed down -14.5 ticks and the 10-year T-note yield rose +3.7 bp to 1.766%. T-note prices dropped to a 2-week low Tuesday and the 10-year T-note yield rose to a 3-week high yield of 1.776% on a rally in stocks and on negative carry-over from a slide in 10-year UK gilts to a 1-month low. A rally in the S&P 500 to a 3-week high Tuesday on stronger-than-expected Q3 corporate earnings results reduced safe-haven demand for government debt and sparked long liquidation in T-notes. A jump in the 10-year UK gilt yield to a 1-month high of 0.724% Tuesday pressured T-note prices further as Brexit optimism curbed the safe-haven demand for UK gilts. Tuesday's global economic data was supportive for economic growth and hawkish for central bank expectations. The German Oct ZEW survey expectations of economic growth index fell by only -0.3 to -22.8, stronger than expectations of -3.9 to -26.4. Also, China Sep CPI rose +3.0% y/y, stronger than expectations of +1.9% y/y and the largest increase in 5-3/4 years. In addition, China Sep new yuan loans rose +1.690 trillion yuan, stronger than expectations of +1.260 trillion yuan and the biggest increase in 6 months. Chinese Sep aggregate financing, the broadest measure of credit growth, rose by +2.270 trillion yuan, stronger than expectations of +1.900 trillion yuan. T-notes found support on Tuesday's comments from St. Louis Fed President Bullard who was speaking at a financial policy conference in London and said rising risks to growth "may make it more difficult for the FOMC to achieve its 2% inflation target" and the Fed "must consider" additional rate-cut insurance. Another bullish factor for T-notes was Tuesday's action by the IMF to cut its global 2019 GDP forecast to a 10-year low of 3.0% from a 3.2% estimate in July, which was the fifth time this year that the IMF has cut its GDP forecast. U.S. inflation expectations rose Tuesday as the 10-year T-note breakeven inflation rate climbed by +0.6 bp to 1.566%. The 10-year T-note breakeven inflation rate rose to a 2-week high Friday of 1.590%, which was well above last Wednesday's 3-year low of 1.470%.