Bond Market Update

Long Bond Resists Early Pressure

• U.S. Treasuries of most tenors retreated for the second consecutive day while the long bond outperformed, recovering its opening loss. The Treasury complex faced pressure from the start with shorter tenors leading the weakness after crude oil continued its climb during the overnight session, returning to $100/bbl. On a related note, inflation expectations in Japan and the eurozone increased significantly due to the price of oil remaining at a high level. Despite the lower start, the market spent the first 90 minutes in a steady rise, but the bounce found resistance shortly after Treasuries climbed above their opening levels. The long bond showed mid-morning resilience, taking the lead during another bounce that returned it to little changed while shorter tenors climbed above their opening levels, but still finished in the red. The U.S. Treasury capped this week's note auction slate with a weak sale of $44 bln in 7-yr notes, but post-auction selling was short-lived. Crude oil finished the day just below $100/bbl while the U.S. Dollar Index rose 0.1% to 98.63, inching back above its 200-day moving average (98.53).
• Yield Check:
  • 2-yr: +4 bps to 3.84%
  • 3-yr: +4 bps to 3.87%
  • 5-yr: +4 bps to 3.98%
  • 10-yr: +2 bps to 4.35%
  • 30-yr: UNCH at 4.94%

• News:
  • JPMorgan Chase CEO Dimon repeated his warning about a potential credit market downturn that could be worse than expected, according to Bloomberg.
  • United Arab Emirates will leave OPEC, looking to increase exports.
  • China's National Development and Reform Commission blocked Meta's planned $2 bln acquisition of Chinese AI startup Manus.
  • The Bank of Japan lowered its domestic growth forecast for the year to 0.5% from 1.0% and raised its inflation forecast to 2.5-3.0% from 1.9-2.0%.
  • Moody's raised China's outlook to Stable from Negative.
  • The European Central Bank released its Consumer Expectations survey for March, showing a jump in year-ahead inflation expectations to 4.0% from 2.5% while the three-year outlook increased to 3.0% from 2.5%. The survey also showed that the economy is expected to contract by 2.1%, down from the previous forecast for a contraction of 0.9%.
  • Japan's March jobs/applications ratio fell to 1.18 from 1.19, as expected, and March Unemployment Rate rose to 2.7% from 2.6% (expected 2.6%). February BoJ Core CPI rose to 2.5% yr/yr from 2.2%.
  • Hong Kong's March trade deficit reached $89.1 bln (last deficit of HKD64.2 bln) as imports rose 41.2% m/m (last 29.9%) and exports jumped 35.8% m/m (last 24.7%).
  • Italy's February Industrial Sales rose 0.6% m/m (last -0.2%), increasing 0.5% yr/yr (last -0.8%). March PPI was up 4.4% m/m (last -0.4%), rising 4.2% yr/yr (last -2.7%).
  • Spain's Q1 Unemployment Rate rose to 10.83% from 9.93% (expected 9.80%) and March Retail Sales rose 4.1% yr/yr (last 2.3%).
  • Italy's February Industrial Sales rose 0.6% m/m (last -0.2%), increasing 0.5% yr/yr (last -0.8%). March PPI was up 4.4% m/m (last -0.4%), rising 4.2% yr/yr (last -2.7%).
  • Spain's Q1 Unemployment Rate rose to 10.83% from 9.93% (expected 9.80%) and March Retail Sales rose 4.1% yr/yr (last 2.3%).
• Today's Data:
  • The Conference Board's Consumer Confidence Index increased to 92.8 in April (Briefing.com consensus: 89.2) from an upwardly revised 92.2 (from 91.8) in March. In the same period a year ago, the index stood at 85.7.
    • The key takeaway from the report is that consumer attitudes were helped in April by perceptions of the labor market and income expectations.
  • The FHFA Housing Price Index was unchanged month-over-month in February (Briefing.com consensus 0.2%) after a revised 0.2% increase (from 0.1%) in January.
  • The S&P Case-Shiller Home Price Index was up 0.9% year-over-year in February (Briefing.com consensus 1.2%), decelerating from a 1.2% increase in January.
  • $44 bln 7-year Treasury note auction results (prior 12-auction average):
    • High yield: 4.175% (3.988%).
    • Bid-to-cover: 2.51 (2.53).
    • Indirect bid: 58.4% (64.2%)
    • Direct bid: 30.0% (25.2%)
• Commodities:
  • WTI crude: +3.7% to $99.95/bbl
  • Gold: -1.9% to $4607.80/ozt 
  • Copper: -0.8% to $5.97/lb
• Currencies:
  • EUR/USD: -0.1% to 1.1714
  • GBP/USD: -0.1% to 1.3519
  • USD/CNH: +0.2% to 6.8382
  • USD/JPY: +0.1% to 159.59
• The Day Ahead:
  • 7:00 ET: Weekly MBA Mortgage Index (prior 7.9%)
  • 8:30 ET: February and March Housing Starts (prior 1.487 mln) and Building Permits (prior 1.376 mln), March Durable Orders (prior -1.4%), Durable Orders ex-transport (prior 0.8%), March advance International Trade in Goods (prior NA), March advance Retail Inventories (prior NA), and March advance Wholesale Inventories (prior NA)
  • 10:00 ET: February and March New Home Sales (prior 587,000)
  • 10:30 ET: Weekly crude oil inventories (prior +1.93 mln)
  • 14:00 ET: April FOMC Decision (Briefing.com consensus 3.50-3.75%; prior 3.50-3.75%)

Auction Reaction

• U.S. Treasuries have climbed back above their starting levels, but they remain in the red with shorter tenors leading the retreat as WTI crude revisits $100/bbl. Today's selling has lifted yields to three-week highs, and the market could see some additional pressure after the just-completed $44 bln 7-yr note sale met weak demand, capping this week's unimpressive note auction slate. Today's sale drew a high yield of 4.175%, which tailed the when-issued yield by half of a basis point while the bid-to-cover ratio (2.51x vs 2.53x average) and indirect takedown (58.4% vs 64.2% average) were below average.
• Yield Check:
  • 2-yr: +4 bps to 3.84%
  • 3-yr: +3 bps to 3.87%
  • 5-yr: +4 bps to 3.99%
  • 10-yr: +3 bps to 4.36%
  • 30-yr: +1 bp to 4.95%

Treasury Auction Results

• $44 bln 7-year Treasury note auction:
  • Auction results:
    • High yield: 4.175% (When-Issued: 4.170%)
    • Bid-to-cover: 2.51
    • Indirect bid: 58.4%
    • Direct bid: 30.0%
  • Average results of previous 12 auctions:
    • High yield: 3.988%
    • Bid-to-cover: 2.53
    • Indirect bid: 64.2%
    • Direct bid: 25.2%

Treasury Auction Preview

• $44 bln 7-year Treasury note auction (results at 13:00 ET):
  • Prior auction results:
    • High yield: 3.790%
    • Bid-to-cover: 2.50
    • Indirect bid: 63.6%
    • Direct bid: 26.0%
  • Average results of previous 12 auctions:
    • High yield: 3.988%
    • Bid-to-cover: 2.53
    • Indirect bid: 64.2%
    • Direct bid: 25.2%

Opening Losses Maintained

• U.S. Treasuries remain near their early lows after a failed bounce attempt during the initial two hours of trade. Treasuries began rising off their startling lows shortly after the open, but they found resistance well before they reached yesterday's closing levels. The past 30 minutes have seen a return to lows with shorter tenors continuing their early underperformance. Economic data released this morning showed a slight improvement in Consumer Confidence for April (92.8; Briefing.com consensus 89.2; prior 92.2).
• Yield Check:
  • 2-yr: +4 bps to 3.84%
  • 3-yr: +3 bps to 3.87%
  • 5-yr: +5 bps to 3.99%
  • 10-yr: +3 bps to 4.37%
  • 30-yr: +2 bps to 4.97%