2-Year T-Note Dec '19 (ZTZ19)

by cmdtyNewswires - Fri Sep 13, 2:42PM CDT
Dec 10-year T-notes (ZNZ19) on Friday closed down -27.5 ticks and the 10-year T-note yield jumped +12.4 bp to 1.896%. Dec T-notes sold-off to a 6-week low Friday and the 10-year T-note yield jumped to a 6-week high of 1.901% on stronger-than-expected U.S. economic data along with negative carry-over from a plunge in European government bonds. U.S. economic data Friday was mostly negative for T-note prices. Aug retail sales rose +0.4%, stronger than expectations of +0.2%, although Aug retail sales ex-autos was unchanged, weaker than expectations of +0.1%. Also, the University of Michigan U.S. Sep consumer sentiment rose +2.2 to 92.0, stronger than expectations of +1.0 to 90.8. On the positive side, Aug import prices fell -2.0% y/y, right on expectations and matched the biggest year-on-year decline in three years. Trade tensions between the U.S. and China eased further Friday, which reduced the safe-haven demand for T-notes, after China's Commerce Ministry announced today that it is encouraging companies to buy U.S. farm products including soybeans and pork and will exclude those commodities from additional tariffs. President Trump Thursday night said he would be open to an interim trade deal with China but would prefer a long-term deal. T-notes were also under pressure from a jump in European government bond yields. The 10-year German bund yield rose to a 6-week high Friday of -0.435% on signs that ECB policy makers have doubts about Thursday's easing measures after ECB Governing Council member Holzmann said Friday that the ECB's latest easing package was a mistake and can be changed after incoming ECB President Christine Lagarde takes over from Mario Draghi on Nov 1. Also, ECB Governing Council member Knot said Friday that that there's no risk of deflation or sign of recession in the Eurozone and he doubts the effectiveness of Thursday’s ECB easing package. The 10-year UK gilt yield jumped to a 1-3/4 month high Friday of 0.769%, which also undercut T-note prices, on some Brexit optimism after the Times reported Friday that the UK's Democratic Unionist Party, an ally of the ruling Conservative Party, would accept a new agreement to replace the Irish backstop. U.S. inflation expectations are on the rise, which is negative for T-note prices, after the 10-year T-note breakeven inflation rate climbed to a 5-week high Friday of 1.672% and finished the day up +4.8 bp to 1.671%. The 10-year T-note breakeven inflation expectations continues to recover from last Tuesday's 2-3/4 year low of 1.494%. Big Picture T-Note Market Factors: Bullish factors for T-note prices include (1) low global bond yields that are helping to pull U.S. bond yields lower, (2) expectations for four more Fed rate cuts through the end of 2020, (3) weak U.S. inflation expectations, (4) weaker U.S. and global economic growth due to trade tensions, and (5) safe-haven demand due to trade tensions, Brexit risks, and geopolitical risks from Iran, North Korea, and Venezuela. Bearish factors include (1) the Fed's go-slow approach to cutting interest rates, and (2) some continued simulative effects from the massive 2018 U.S. tax cut.