Bond Market Update

Midweek Pullback Deepened

• U.S. Treasuries faced some more pressure on Thursday, lifting the 30-yr yield toward this week's high (4.944%) while yields on shorter tenors returned to their opening levels from Tuesday. The market attempted to recover yesterday's losses during the first few minutes of action, but it found resistance just an hour after the start, spending the remainder of the session in a slow retreat. The retreat was paced by the long bond, lifting its yield toward this week's high from Monday while yields on shorter tenors finished a bit below this week's highs. The intraday selling took place as oil reclaimed a portion of its loss from the past two days amid some focus on a Bloomberg report that unnamed officials in European and Gulf state governments believe that a peace deal with Iran could take six months to complete. Economic data released today included another low weekly initial claims reading (207,000) and a strong Philadelphia Fed Index (26.7; Briefing.com consensus 12.7), countered by a disappointing Industrial Production report for March (-0.5%; Briefing.com consensus 0.1%). Overseas, China reported in-line GDP growth for Q1 (1.3% qtr/qtr) while the U.K. reported strong growth for February (0.5% m/m; expected 0.1%). Crude oil climbed toward $95/bbl while the U.S. Dollar Index rose 0.1% to 98.19.
• Yield Check:
  • 2-yr: +1 bp to 3.78%
  • 3-yr: +2 bps to 3.80%
  • 5-yr: +2 bps to 3.91%
  • 10-yr: +3 bps to 4.31%
  • 30-yr: +4 bps to 4.93%

• News:
  • China's President Xi pledged to increase cooperation with Russia after meeting with Russia's Foreign Minister Lavrov. Russia's President Putin is expected to visit China in late May.
  • European Central Bank officials are reportedly skeptical about an April rate hike due to little evidence of knock-on effects from the energy price spike.
  • The European Banking Authority noted that private credit does not pose a systemic risk to banks in the EU.
  • China's Q1 GDP expanded 1.3% qtr/qtr, as expected (last 1.2%), growing 5.0% yr/yr (expected 4.8%; last 4.5%). March Fixed Asset Investment rose 1.7% yr/yr (expected 1.9%; last 1.8%), March Industrial Production increased 5.7% yr/yr (expected 5.4%; last 6.3%), March House Prices fell 3.4% yr/yr (last -3.2%), and March Retail Sales rose 1.7% yr/yr (expected 2.4%; last 2.8%).
  • Australia's April MI Inflation Expectations accelerated to 5.9% from 5.2%. March Employment increased by 17,900 (expected 19,100; last 49,700) and full employment increased by 52,500 (last -27,700). March Unemployment Rate remained at 4.3%, as expected, and March Participation Rate dipped to 66.8% from 66.9% (expected 66.9%).
  • Eurozone's March CPI was up 1.3% m/m (expected 1.2%; last 0.6%), rising 2.6% yr/yr (expected 2.5%; last 1.9%). March Core CPI was up 2.3% yr/yr, as expected (last 2.4%).
  • U.K.'s February GDP expanded 0.5% m/m (expected 0.1%; last 0.1%), February Manufacturing Production decreased 0.1% m/m (expected 0.3%; last 0.2%), falling 0.5% yr/yr (expected -0.3%; last 1.3%). February Industrial Production rose 0.5% m/m (expected 0.3%; last -0.1%) but was down 0.4% yr/yr (expected -0.9%; last 0.5%). February Construction Output rose 1.0% m/m (expected -0.4%; last 0.5%) but was down 1.0% yr/yr (expected -0.4%; last -1.9%). February trade deficit reached GBP18.79 bln (expected deficit of GBP19.40 bln; last deficit of GBP15.08 bln).
  • Italy's March CPI was up 0.5% m/m, as expected (last 0.7%), rising 1.7% yr/yr, as expected (last 1.5%).
  • Swiss March PPI was up 0.2% m/m (expected 0.5%; last -0.3%), falling 2.7% yr/yr (last -2.7%).
• Today's Data:
  • Initial jobless claims for the week ending April 11 decreased by 11,000 to 207,000 (Briefing.com consensus: 215,000). Continuing jobless claims for the week ending April 4 increased by 31,000 to 1.818 million, but the four-week moving average of 1,813,250 is the lowest since June 1, 2024.
    • The key takeaway from the report is that it refutes any notion that the labor market is cracking in a way that will lock up discretionary spending. Initial jobless claims—a leading indicator—continue to run at historically low levels.
  • The Philadelphia Fed Index jumped to 26.7 in April (Briefing.com consensus: 12.7) from 18.1 in March. The dividing line between expansion and contraction for this series is 0.0, so the April reading implies manufacturing activity in the Philadelphia Fed region accelerated versus the prior month.
    • The key takeaway from the report is that price increases have become more widespread, yet the demand is still there, evidenced by a pickup in the new orders index to 33.0 from 8.6.
  • Industrial production declined 0.5% month-over-month in March (Briefing.com consensus: 0.1%) following an upwardly revised 0.7% increase (from 0.2%) in February. The capacity utilization rate was 75.7% (Briefing.com consensus: 76.4%), versus a downwardly revised 76.1% (from 76.3%) in February.
    • The key takeaway from the report is that the headline decline is not as bad as it looks when taking into account the large upward revision to industrial production in February, which effectively offsets the decline in March.
  • Weekly natural gas inventories increased by 59 bcf after increasing by 50 bcf a week ago.
• Commodities:
  • WTI crude: +3.7% to $94.71/bbl
  • Gold: -0.4% to $4805.80/ozt
  • Copper: UNCH at $6.08/lb
• Currencies:
  • EUR/USD: -0.1% to 1.1782
  • GBP/USD: -0.2% to 1.3532
  • USD/CNH: +0.1% to 6.8220
  • USD/JPY: +0.2% to 159.17
• No Data on Tomorrow's Schedule

Oil Remains in Focus

• U.S. Treasuries have seen some pressure over the past couple hours, lifting yields on the 10-yr note and shorter tenors back to their opening levels from Tuesday while relative weakness in the long bond has its yield within two basis points of Monday's high. The recent selling comes alongside a renewed strength in the price of oil, which is now approaching $95/bbl, up more than $3/bbl on the day. This follows a report from Bloomberg that some Gulf and European officials believe that reaching a peace deal with Iran could take up to six months. Equities have dipped from their highs in recent action, but the S&P 500 (+0.2%) remains on track for a fresh record close.
• Yield Check:
  • 2-yr: +1 bp to 3.78%
  • 3-yr: +2 bps to 3.80%
  • 5-yr: +2 bps to 3.92%
  • 10-yr: +2 bps to 4.31%
  • 30-yr: +3 bps to 4.92%

Opening Gains Reversed

• U.S. Treasuries have dipped from their morning highs, returning most tenors to little changed, though the overall trading range has remained quite narrow. The 10-yr yield has bounced inside a two-basis point range through the first 90 minutes of today's session while yields on other tenors have followed suit. Equities started the day in positive territory with the S&P 500 (-0.1%) tagging a fresh record high before giving back its slim opening gain.
• Yield Check:
  • 2-yr: UNCH at 3.77%
  • 3-yr: UNCH at 3.78%
  • 5-yr: UNCH at 3.90%
  • 10-yr: UNCH at 4.29%
  • 30-yr: +1 bp to 4.90%

Data Recon

• Industrial production declined 0.5% month-over-month in March (Briefing.com consensus: 0.1%) following an upwardly revised 0.7% increase (from 0.2%) in February. The capacity utilization rate was 75.7% (Briefing.com consensus: 76.4%), versus a downwardly revised 76.1% (from 76.3%) in February.
  • The key takeaway from the report is that the headline decline is not as bad as it looks when taking into account the large upward revision to industrial production in February, which effectively offsets the decline in March.
• Yield Check:
  • 2-yr: -1 bp to 3.76%
  • 3-yr: -1 bp to 3.77%
  • 5-yr: -2 bps to 3.88%
  • 10-yr: -1 bp to 4.27%
  • 30-yr: UNCH at 4.89%

Data Recon

• Initial jobless claims for the week ending April 11 decreased by 11,000 to 207,000 (Briefing.com consensus: 215,000). Continuing jobless claims for the week ending April 4 increased by 31,000 to 1.818 million, but the four-week moving average of 1,813,250 is the lowest since June 1, 2024.
  • The key takeaway from the report is that it refutes any notion that the labor market is cracking in a way that will lock up discretionary spending. Initial jobless claims—a leading indicator—continue to run at historically low levels.
• The Philadelphia Fed Index jumped to 26.7 in April (Briefing.com consensus: 12.7) from 18.1 in March. The dividing line between expansion and contraction for this series is 0.0, so the April reading implies manufacturing activity in the Philadelphia Fed region accelerated versus the prior month.
  • The key takeaway from the report is that price increases have become more widespread, yet the demand is still there, evidenced by a pickup in the new orders index to 33.0 from 8.6.
• Yield Check:
  • 2-yr: -2 bps to 3.75%
  • 3-yr: -1 bp to 3.77%
  • 5-yr: -2 bps to 3.88%
  • 10-yr: UNCH at 4.28%
  • 30-yr: +1 bp to 4.90%