GILTS: Budget-Driven Rally Fades

• Treasuries are little changed on the day, with yields between +/- 0.5bps, consolidating yesterday’s twist flattening.  
• Early attention could be on geopol headlines, including with President Trump at a dinner with business leaders in Tokyo.
• We suspect today’s data focus is on the Conference Board consumer survey for October, especially the labor differential which in recent months has continued to imply a steady drift higher in the unemployment rate.
• Today also sees further note issuance with 7Y supply after yesterday’s double 2Y and 5Y auctions of which both were near in-line.
• The FOMC tomorrow, Trump-Xi Thursday and big tech earnings loom large this week.
• Fed Funds implied rates are unchanged on the day, pointing to a 25bp cut tomorrow and a cumulative 49bp to year-end, before 73.5bp for March and 93bp for June.
• TYZ5 trades at 113-16 (+02+) on modest volumes of 245k, having kept to narrow ranges of 113-14+ to 113-18+.
• It consolidates yesterday’s lift off lows of 113-04, in a move that probed support at 113-06+ (20-day EMA) and opened 112-25+ (50-day EMA). Recent weakness appears to be corrective with a bullish structure still in place, with resistance at 113-24 (post-CPI high) before 114-02 (Oct 17 high).
• Data: FHFA/S&P Cotality House Prices Aug (0900ET), Conf Board consumer survey Oct (1000ET), Richmond Fed mfg Oct (1000ET), Dallas Fed Services Oct (1030ET)
• Coupon issuance: Tsy $44B 7Y Note auction - 91282CPF2 (1300ET)
• Bill issuance: US Tsy $95B 6W & $50B 52W bill auctions (1130ET)
• Politics: Trump in Reception and Dinner with Business Leaders in Tokyo (0605ET)

• Another weak German auction today of the 2.20% Oct-30 Bobl. Amount of bids remained roughly unchanged vs October 7, when the line was last issued.
• Demand metrics remained very weak despite picking up marginally vs Oct 7: The auction was technically uncovered with a 0.94 bid-to-offer. Bid-to-cover also low at 1.24x. The lowprice achieved at the auction was above the pre-auction secondary market midprice, however.
• No discernible market reaction following the results.

"ECB'S PANETTA: EURO APPRECIATION IS SIGNIFICANTLY ERODING PRICE COMPETIVENESS OF EU PRODUCTS" - Reuters