Treasury Auction a Barometer for Bessent's Debt Management Approach — Market Talk
1134 ET - The Treasury Department's $22 billion 30-year auction today will test whether investors are ready to lock up their money while bond rates are at their highest levels since 2007, BMO analysts say in a research note. Bessent's line-in-the-sand for long-bond rates looks to be 5.3%, meaning today's reopening will be a potentially crucial litmus test for his department's new activist approach to debt management, the analysts say. They expect this to be the highest yielding 30-year auction since the financial crisis. Yesterday's 10-year reopening cleared at the highest yield since 2008, the analysts say. ([email protected])1110 ET - Bitcoin's recent rally tested levels above the $80,000 mark, but it appears it's now in a consolidation phase. The cryptocurrency briefly dropped under $77k after the August PPI came in as expected, but has pared its losses since and is currently trading down 1.3% at $77,289. With more inflation data to come on Friday, and yields rising ahead of the FOMC meeting next week, investors are reluctant to put too much faith in crypto, says analysts with Glassnode in a note. "The bond market bitcoin is rallying into remains restrictive," says the firm. Bitcoin isn't expected to retest new lows for the year, with signals suggesting that the bottom is in, according to Glassnode. ([email protected])1040 ET - At the ECB's press conference, President Christine Lagarde didn't take opportunities to push back against elevated market expectations for interest rates and set a higher bar for further tightening, Pantheon Macroeconomics' Claus Vistesen says in a note. When asked whether 2.5% represents the upper end of neutral, Lagarde noted that the neutral rate is of "no great importance". "We now think the ECB will shift its policy rate more decisively into restrictive territory over the next six months," Vistesen says. He now expects a rate hike in December and another in February, before two cuts in September and December 2027. That effectively validates the market-implied path between now and March, but also that expectations for the end of 2027 remain much too high, he adds. ([email protected])1038 ET - European energy producers and insurance companies are likely to benefit due to the elevated energy prices and the European Central Bank decision to increase interest rates, eToro's Lale Akoner says in a note. The ECB raised the deposit rate to 2.5% during Thursday's policy decision, as markets expected. Sectors that could be negatively affected by the rate increase include property, housebuilders, smaller companies, and retailers, she says. "Banks may benefit initially from wider lending margins, but that advantage will fade if loan demand weakens and defaults rise." ([email protected])1022 ET - European Central Bank President Christine Lagarde's policy statement was broadly balanced, Point72's Soren Radde says. She noted that wages aren't responding to the energy-price shock while financial conditions were tightening, but also acknowledged greater inflation persistence, Radde says. The dominant theme among policymakers seems to have been concern over prolonged high inflation, rather than the magnitude of price growth or a change in view on second-round effects, he says. "Accordingly, we did not get the impression of much incremental urgency," Radde says. Indeed, Lagarde steered clear of providing rate guidance. But a December hike now seems likely, with another hike in 2027--most likely in March--very possible, he adds. ([email protected])1015 ET - Homebuying costs have hit their highest level in over a year, Redfin says. The typical U.S. homebuyer's monthly mortgage payment reached a 14-month high of $2,641. That's partly because the median home-sale price rose 2.2% year over year, and partly because the weekly average mortgage rate increased to 6.71%. Elevated costs are keeping some would-be buyers on the sidelines. Pending home sales were essentially flat from a week earlier, sitting near their lowest level since February. Buyers have negotiating power in most of the country, but for many house hunters, that isn't enough to offset high costs. Sellers are listing their homes because they want to sell before prices decline, life circumstances are prompting them to move, and the lock-in effect is easing. ([email protected])1011 ET - An interest rate increase by the European Central Bank in December looks plausible, eToro's Lale Akoner says in a note. The ECB raised the key rate to 2.5% at Thursday's rate decision, as widely expected, marking its second rate hike in 2026. Nonetheless, markets' expectations of four potential ECB rate increases this year appears excessive, Akoner says. "Europe has yet to see a convincing wage-price spiral" to justify four ECB rate rises in 2026, she says. Investors fully price in one more quarter-point rate hike by December, and a 24% chance of an additional rate increase by year end, LSEG data show. ([email protected])1004 ET - The European Central Bank's interest-rate hike to 2.5% was "unavoidable" with inflation in the eurozone currently above 3%, president of Germany's Ifo Institute Clemens Fuest says. Given that the economy remains quite weak, the rate increase comes at an inopportune time for Germany, he says. However, with core inflation--an underlying measure that strips out more volatile energy and food costs--also well above 2%, the ECB had no choice but to act, he adds. Headline inflation in the eurozone was 3.3% in August, while it was 2.9% in Germany. Risks remain to the upside for inflation, the ECB said. ([email protected])0947 ET - The European Central Bank's decision to increase interest rates protects against high energy prices extending into wages and services prices, eToro's Lale Akoner says in a note. The ECB increased the deposit rate to 2.5% during Thursday's policy decision, as widely expected. "Still, higher rates can limit how far the energy shock spreads through the economy, but they cannot address its underlying cause," Akoner says. The ECB risks hurting European households' spending power due to higher interest rates, she says. ([email protected])0926 ET - August's PPI largely met analyst expectations, rising 0.4% from July. Now, market participants will focus on tomorrow's CPI print. Rate hike projections are nearing 70% for September's interest rate meeting, according to CME's FedWatch tool. After the CPI is released, economists will start submitting their projections for PCE, the Fed's preferred inflation target. A lower-than-expected CPI print tomorrow would strengthen the case for holding rates steady. "October is a live meeting, but it would be highly unlikely that they would begin a rate hiking cycle," wrote Chris Zaccarelli, chief investment officer for Northlight Asset Management.([email protected])0923 ET - A further hike of the European Central Bank's deposit rate to 2.75% during one of the year's final two meetings is "entirely realistic", Eurizon's Massimo Spadotto writes. As things stand, one more hike should likely be considered the base-case scenario, even though it is by no means certain, he adds. "This remains heavily dependent on the trajectory of commodity prices, which are naturally influenced by developments in the [Middle East] conflict," the head of fixed income says. "However, markets have already fully priced in two additional rate hikes for this year; consequently, these moves should not weigh on the market per se but could instead potentially trigger a 'sell the rumor, buy the fact' dynamic," he says. The ECB raised its key policy rates by 25 basis points, bringing the deposit rate to 2.50%. ([email protected])0921 ET - Nothing in today's economic data could dissuade selling pressure seen in the Treasury market, BMO Capital Markets' Ian Lyngen says in a note. The August PPI moves higher, and the yearly pace moves higher month-over-month for the first time since May, Lyngen says. That should clear the way for the CPI to set the agenda on inflation tomorrow, he says. Weekly jobless claims meanwhile come in at 206,000, a decrease of 1,000 from the previous week's revised level. Given those readouts, the bearish repricing in Treasurys has room to extend, Lyngen says. ([email protected])