U.S. Government bonds little changed in quiet trading session

The U.S. Government bonds were little changed during a relatively quiet Monday session that witnessed data of little significance. The yield on the benchmark 10-year Treasury note hovered around 1.60 percent mark, the yield on 5-year bond remained steady at 1.16 percent and the yield on short-term 2-year note stood flat at 0.78 percent by 10:00 GMT.

The August US Commerce Department personal income and spending report revealed an overall unchanged m/m reading in personal spending, below expectations for a +0.1 percent m/m increase versus the unrevised +0.3 percent m/m reading seen in July. Meanwhile, personal income came in +0.2 percent m/m in August, versus the unrevised +0.4 percent m/m reading that occurred in July, in line with expectations for a +0.2 percent m/m increase.

On a real basis, personal spending decreased -0.1 percent m/m, following the +0.3 percent m/m reading seen in June. Despite the weaker headline results, we anticipate greater traction will be seen in the coming months as employment conditions improve and consumer activity becomes more sustained.

The US Commerce Department personal income and spending report revealed a +1.0 percent y/y for the PCE deflator, following the +0.8 percent y/y increase seen in July, above expectations for a +0.9 percent y/y result. However, if resumed tightness in core PCE data materializes it could likely signal greater pressure on the Fed to shift further away from current policy accommodation (signaling to markets a potentially more aggressive tightening campaign).

Markets now look ahead to a greater flow of data in the week ahead, highlighted by ISM manufacturing/non-manufacturing, ADP employment estimate and trade balance data, all eventually leading to the September employment report on Friday (market expectations are for a +175k increase in non-farm payrolls, alongside a 4.9 percent unemployment reading). Although we do not expect these data points are likely to trigger any urgency from the Fed to move rates in November, we expect they will likely keep the course of eventual tightening before year-end.

Meanwhile, the S&P 500 Futures traded 14.17 points higher at 2,168.27 by 10:00 GMT.