Treasury Yields Slide as Weak Housing Data Piles Up

what happened

US Treasury yields eased after a series of housing reports came in below expectations. The pending home sales index, which tracks contract signings and leads actual sales, fell 7.3% in September to 66, its lowest level since the gauge was set up in 2001. Housing starts dropped 5.2% to 1.221 million units, while economists polled by the Wall Street Journal had expected 1.3 million and a 2% gain.

The U.S. 10-year yield slid to 5.123%, touching a low of 5.078% during the session. The two-year note hovered near 4.791%, and the 30-year bond near 5.433%. In France, the 10-year OAT yield backed off its session highs, declining 0.23 basis points to 4.9231%, while the German 10-year Bund yield fell 5.92 basis points to 3.3936%. The gap between the two widened by 152.95 basis points, according to LSEG data.

Dow Jones Newswires notes that budget disputes in the National Assembly and mass protests in France keep pressure on French debt. Capital Economics, Commerzbank and Citi all warn the spread could widen further as the risk premium climbs, while BlackRock calls the current situation materially different from the eurozone crisis of 2011 to 2012.

why it matters

The next big test for markets is the Federal Reserve decision on October 28. LSEG data shows money markets pricing an 83% chance that the policy rate stays in the 3.75%-4.00% range. Deutsche Bank expects a quarterly pace of rate increases through March. For euro-area bonds, the key risk is that France's risk premium has no clear anchor level, leaving investor sentiment to set the direction.

market impact

US and French bonds: weak housing data and French budget risk weigh on the OAT-Bund spread

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