Bonds Halt Historic Selloff, Oil Surges on OPEC Deal Efforts

The global bond selloff that began when Donald Trump was elected US president last Wednesday halted its record pace today.  Expectations of tax cuts, decreased business regulation, and increased infrastructure spending under Trump had prompted a routing of the bond market that saw yields rise at the steepest rate in seven years.  Early this morning, the relative strength index for 10-year Treasury yields indicated that the securities had been the most oversold over the past week since 1990.  The previous three trading sessions had resulted in 10-year yields climbing 41 basis points before falling 3 basis points to 2.23% today.  Uncertainty over Trump’s ability to get his fiscal stimulus plans approved by Congress have begun to muddy the near-term inflationary outlook that had initially spurred the global bond selloff.

US economic data released today showed robust retail sales for October to accompany a large 0.4% upward revision to the September retail figure.  Recorded strength in 10 of the 12 main retail categories led to a 0.8% MoM gain, exceeding median forecasts of a 0.6% bump.  Building materials posted substantial gains of 1.1%, attributed largely to household rebuilding after the turmoil caused by Hurricane Matthew.  Home furnishings and food services/drinking sectors were the lone categories to show a decrease in sales.  Overall, the positive economic data furthers the argument for a rate hike by the Fed at December’s meeting, where the probability of an increase now stands at over 90%.     

Prices of crude oil surged the most in seven months today following reports that OPEC officials were expanding efforts to secure a production-cutting deal with the November 30th meeting in Vienna fast approaching.  OPEC’s top official plans to tour several member states over the next two weeks, including trips to Caracas, Quito and Tehran.  Additionally, Russia will hold informal discussions with other oil-producing nations at the Gas Exporting Countries Forum in Doha beginning November 17.  Saudi Arabia’s energy minister will also be present for the talks, but has previously stated that any participation by the nation will need to be accompanied by efforts from Iraq and Iran.  Today’s optimistic speculation pushed crude prices up over 5.75% for the session.

All three major U.S. stock indexes finished up 0.29%-1.10% on the day, with the Dow Jones reaching a new record high at 18,923.  Treasury yields/swap rates declined 1-7 bps across the curve in a bull flattening pattern.  The rally in oil pushed WTI crude to $45.80/barrel and Brent crude to $46.85/barrel.