Daily Market Color

2y UST Yield Back Above 5.10%

Rates invert further as news from overseas highlights. Today’s session saw the yield curve invert further, as the 2y yield closed 6bps higher at 5.11% and the long end of the curve fell as many as 6bps. News from abroad headlined, as “humanitarian pauses” in the Israel-Hamas War saw oil prices fall, and China announced economic stimulus. Strong U.S. PMI offered economic optimism, though Thursday and Friday PCE figures will be more scrutinized.

US business activity picks up in October. Today’s S&P PMI data for October showed expansion after months of stagnation, assisted by higher factory demand and less service-sector inflation. The composite index reached a 3-month high of 51, 1 point inside expansion territory, factories saw new order growth for the first time since April, and service sector business activity improved. The survey also includes selling price data, which fell to a 3-year low on decreased inflationary pressures at service providers. S&P Chief Business Economist Chris Williamson said after the release, “Hopes of a soft landing for the US economy will be encouraged by the improved situation seen in October.”

Economic support in China. In renewed efforts to boost their economy, China announced that it will issue additional sovereign debt (~1 trillion yuan in the fourth quarter) and raise the budget deficit ratio. An approved plan will see the fiscal deficit ratio increase to ~3.8% of GDP, which is well above the 3% level set in March. The mid-year budget adjustment is unprecedented in recent years and has not been done since 2008, a signal of tangible economic concern among Chinese leaders.

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