Treasury prices fell on Monday, sending yields higher with one day to go before the national election. Cover for this position-squaring was provided by the large drop in the price of oil, which set off a small chain-reaction in the wake of weaker-than-expected U.S. data, says Action Economics.
Personal income rose by only 0.2%, outpaced as usual by a 0.6% gain on consumption, though the core PCE price index remained at a tame 1.5% year-over-year rise -- well below the Fed's 2.0% pain threshold. The ISM manufacturing index declined to 56.8 in October from 58.5, which appeared to refute the optimism inherent in the Chicago PMI report on Friday. Construction spending came in with a flat September reading, likely dented by hurricanes during the month.
News that Russian oil producer Yukos would not be declared bankrupt, despite its enormous tax liability with the Russian state, helped knock crude oil back below $50 per barrel as speculative positions were trimmed. Nigerian oil workers also declared that they might not go along with a national strike Subsequent news that the oil pipeline in North Iraq had been bombed kept oil from falling further.
The 10-year yield accordingly ramped up from the 4.04% area set after the data to the 4.10% area as stocks rebounded into the green, though they clearly had trouble capitalizing on cheaper energy ahead of the election. The bond market also shrugged off reports from Fedwatchers (WSJ) and Berry (Bloomberg) raising the odds of a Fed pause in December, says Action Economics.