10-Year T-Note Futures Market News and Commentary
Dec T-notes (ZNZ19) on Wednesday closed up +7 ticks and the 10-year T-note yield fell -3.0 bp to 1.741%. T-note prices moved higher Wednesday after an unexpected decline in U.S. Sep retail sales bolstered speculation the Fed may need to keep cutting interest rates. Wednesday's data showed U.S. Sep retail sales unexpectedly fell -0.3% and -0.1% ex-autos, weaker than expectations of +0.3% and +0.2% ex-autos and the first decline in 7 months. T-notes also saw support Wednesday from weakness in U.S. stock indexes on that concern increased Hong Kong tensions may prevent the U.S. and China from agreeing to a trade deal. Stocks retreated after China's foreign ministry on Wednesday threatened unspecified "strong countermeasures" if the U.S. Congress passes a bill offering support to pro-democracy protesters in Hong Kong. The House on Tuesday passed the "Hong Kong Human Rights and Democracy Act," while the Senate has yet to act. The Fed Beige Book, released Wednesday afternoon, was slightly supportive for T-notes as information collected by the 12 Fed regional banks in the month through Oct 7 stated that the U.S. economy expanded at a "slight to moderate pace" with some districts reporting that "persistent trade tensions and slower growth weighed on activity." Comments from Chicago Fed President Evans on Wednesday were positive for T-note prices when he said, "there is an argument for more accommodation now to provide some further risk-management buffer against potential downside shocks." On the negative side for T-notes was the jump in the 10-year German bund yield Wednesday to a 2-1/2 month high of -0.379%. Bunds prices moved lower and yields rose after Bloomberg on Wednesday reported that German Chancellor Merkel's Christian Democrat party (CDU) is softening its opposition to fiscal stimulus. The report said the CDU caucus in the Bundestag would be ready to break its commitment to a balanced budget if an economic downturn required a more powerful action. U.S. inflation expectations rose slightly Wednesday as the 10-year T-note breakeven inflation rate climbed by +0.3 bp to 1.569%. The 10-year T-note breakeven inflation rate rose to a 2-week high last Friday of 1.590%, which was well above last Wednesday's 3-year low of 1.470%.