Treasurys Selloff Takes a Pause Ahead of Jobs Report — Market Talk

1620 ET - Treasury yields fall ahead of September's U.S. jobs report, which is expected to bolster the case for a slower pace of monetary tightening. Economists surveyed by WSJ forecast job creation slowing to 84,000 from 162,000. The Treasury buys back $6 billion in long-term bonds, exceeding previous operations' amounts. A flight for safety boosts demand for German bunds and U.S. Treasurys, weakening yields, as investors ditch debt from highly indebted European governments. Borrowing costs, however, remain close to multidecade highs. The 10-year Treasury yield slips 0.059 percentage point, snapping a seven-day rising streak, to 5.233%. The two-year drops 0.1 point to 4.785%. ([email protected]; @ptrevisani)1536 ET - Housing affordability remains one of the most pressing economic issues facing Canadians but is hard to solve because the problem is poorly understood not because no one has tried, Bank of Canada Senior Deputy Gov. Carolyn Rogers says. In a speech, Rogers says regulation can make markets fairer, strengthen borrowers and banks and help the financial system absorb shocks, but it can't restore affordability. For central banks, the best contribution is price stability, she adds. Low, stable and predictable inflation gives households, businesses, builders and governments a better foundation for decision-making. "Housing must remain an important input into monetary policy decisions, but targeting house prices directly with interest rates would ask monetary policy to do more than it can reasonably do." ([email protected]; @RobbMStewart)1528 ET - The U.S. Treasury buys back its full $6 billion target in outstanding 10- to 20-year bonds. Two issues maturing in 2041 and 2042 were accepted, out of 41 eligible. It is the first time the department hits the maximum amount announced since Secretary Bessent said in August that it would increase long-term bond buybacks to at least $4 billion from the usual $2 billion. In two previous operations aiming at $6 billion, the Treasury ended up accepting $5.2 billion (10- to 20-year tenors) and $4.1 billion (20- to 30-year). The increased buyback aims to support liquidity. ([email protected]; @ptrevisani)1234 ET - Tighter fiscal and monetary policy is set to constrain the Gulf's economic recovery, Capital Economics says. Saudi Arabia is likely to cut investment projects to narrow its wide budget deficit, particularly if oil prices fall next year, while Gulf central banks are expected to tighten policy alongside the Federal Reserve. Capital Economics expects another 50 basis points of Fed rate increases, which it says will slow regional credit growth. The consultancy forecasts Saudi GDP to contract 2.5% this year before rebounding 9.3% in 2027 as oil output recovers, while the Gulf economy overall is expected to shrink around 5% this year. ([email protected])1112 ET - Bitcoin ETFs recorded their first net outflow day since mid-September, entering a month that typically is strong for both ETF flows and retail investor demand. "Bitcoin's median October return has historically been around 11%-14%," says Lacie Zhang of Bitget Wallet in a note. "October has a strong historical track record for bitcoin, but seasonality alone is not an investment thesis." Zhang says that outside macroeconomic factors may keep pressure on bitcoin this month. "High interest rates, oil prices and renewed inflation pressure remain the main headwinds." Zhang pegs downside support at $82,000, while resistance is seen at $87,500. Bitcoin is up 0.5% to $84,047. ([email protected])1106 ET - One of the bigger challenges for monetary policymakers is figuring out what's underneath a supply shock versus what's true demand, says Kansas City Fed president Jeff Schmid in Asheville, North Carolina. "Hopefully when things like headline types of pricing calm down, because you don't want to overshoot," Schmid says. Schmid said in September, that even without energy prices, inflation is still running too hot across a broad range of goods and services. The Fed raised rates by 25 basis points last month--and investors have lowered their bets this week that they will raise again in October. ([email protected])1052 ET - Rising bond yields are making investors wary of buying long-dated government bonds, Aberdeen Investments says in a note. "While higher long-term yields may appear attractive, investors must weigh that additional income against the potential for continued volatility," Aberdeen says. U.S. 30-year Treasury yields hit 5.693%, their highest since 2002, Tradeweb data show. U.K. 30-year gilt yields surge to 6.029%, the highest since 1998. ([email protected])1036 ET - Short-dated bonds look more favorable than their long-dated peers, which have climbed to multidecade highs, Aberdeen Investments' Mark Munro says in a note. "Short-dated credit, across both sovereign and corporate bonds, allows [investors] to benefit from today's higher yields while reducing their exposure to the interest-rate volatility," he says. High oil prices and steady growth are causing investors to price in multiple interest-rate hikes by major central banks, contributing to rising sovereign bond yields. U.S. 30-year Treasury yields hit 5.693%, the highest since 2002, Tradeweb data show. U.S. 2-year Treasury yields fall 4.2 basis points to 4.848%. ([email protected])1030 ET - The euro is facing several headwinds, HSBC's Nick Andrews says in a note. The support the euro enjoyed from expectations for further European Central Bank interest-rate rises appears to have faded since the Federal Reserve raised rates and signaled further moves in September, he says. The eurozone also faces a hit from a potential U.S. ban on diesel exports and a possible natural gas squeeze this winter, he says. Furthermore, renewed French fiscal concerns have sent the 10-year German-French government bond yield spread to its highest level since 2012. "For euro-dollar, the balance of risks remains skewed lower." The euro falls 0.4% to $1.1286 after reaching a 16-month low of $1.1264 earlier, according to LSEG. ([email protected])1027 ET - France's 2027 budget should curb the deficit but will do little to stabilize public debt, while political uncertainty threatens to keep bond markets under pressure, ING analysts say in a note. The 43 billion-euro package aims to reduce the deficit to 5% of GDP, from 5.4% in 2026. But debt is projected to rise to 121.7% of GDP. ING expects a modified budget to pass, potentially bypassing a parliamentary vote. Meanwhile, French-German bond spreads--which currently trade at 135.90 basis points--could widen amid fiscal and political concerns. "We see spreads remaining in a range well above the 100 basis-point level--more likely testing levels towards 150bp." The ECB is unlikely to intervene, but could if turmoil spreads beyond France, the analysts say. ([email protected])0936 ET - Bitcoin's price is in a tug-of-war between strong ETF and corporate demand on one side and persistent inflation and rate risks on the other, Bitget Wallet's Lacie Zhang says in a note. It is trading around $83,500, with Zhang seeing $82,000 as the key downside level and $87,500 as the trigger to a bigger rally. Institutional demand can provide a floor, but it's unclear whether that demand can continue exceeding profit-taking by long-term holders and selling from miners, the analyst says. Bitcoin faces major tests from jobs data coming out tomorrow and September inflation data coming out in two weeks, Zhang says. If those reports reinforce the case for hiking rates, crypto will be under pressure from higher real yields and a stronger dollar, the analyst says. ([email protected])0913 ET - The cost of insuring 5-year French government bonds against default climbs to a multiyear high on growing fiscal and political concerns. French government bonds have come under pressure as rising borrowing costs weigh on public finances. On Thursday, the government outlined a budget proposal for 43 billion euros in cuts and cost savings, but implementing them could be tricky. Political uncertainty is high meanwhile ahead of the 2027 presidential election. "With a difficult political process ahead, French bonds are likely to remain under pressure," ING strategists say in a note. Five-year French credit default swaps jump to 72 basis points, their highest since 2017, having risen sharply from around 33 basis points at the start of September, S&P Global Market Intelligence data show. ([email protected])