- Two-year Treasury rises 0.7bps to 5.216%, 10-year higher by 7.2bps to 4.906%, and the 30-year gains 7.0bps to 4.995%
- Beige book sees US outlook as stable or slightly weaker
- Treasury market unraveled by growth in supply; today’s auction saw surprisingly better demand
The dollar is holding onto most of its gains as the surge in Treasury yields stalls after a historic bond market slide. A 20-year bond auction saw strong demand, bucking the tepid demand we saw last week. This auction was awarded at 5.245%, which is 65 bps more than what happened in September. Investors are still buying bonds, but geopolitical risks and US deficit concerns, along with a potential government shutdown could keep yields rising.
The Beige book showed business are struggling to pass on costs to the consumer. Economic weakness is happening, but that will only be more noticeable if we see a stronger cooling of the labor market.
Overall, employment continued to increase modestly, though employment declined among retailers. Although layoffs were generally not occurring in the region, an upstate New York employment agency pointed to a slight softening in conditions in recent weeks.
Inflationary pressures moderated slightly in recent weeks. Service sector contacts reported some slowing in the pace of input price increases, while manufacturers indicated the pace of input price increases was little changed. The pace of selling price increases slowed somewhat among both manufacturing and service firms. Fewer businesses expect rising prices in the months ahead. Still, inflation remains a significant concern, and contacts noted that higher prices are taking a toll on household balance sheets and limiting discretionary income.
Consumer spending increased at a slightly slower pace in the latest reporting period with some shifts in the composition of purchases. Spending on apparel, interior furnishings, home electronics, and appliances grew at a steady clip after a period of stagnation
USD/JPY Daily Chart
The dollar appears well positioned for short-term strength as growth prospects for Q4 remain robust. USD/JPY appears poised to test the waters above the 150 level.