Bond Market Update

Slipping Into 2026

• U.S. Treasuries started 2026 with modest losses in the 5-yr note and longer tenors while the short end resisted the pressure, leaving the 2-yr note near its closing level from Wednesday. The first session of the year saw a slightly higher start despite early weakness in other sovereign debt. The early strength began fading shortly after the start with longer tenors seeing a continuation of late selling on New Year's Eve. The extension of Wednesday's losses sent the 30-yr yield to its highest close since early September while the 10-yr yield stopped just shy of its December high. Up front, the outperformance in the 2-yr note made for a continuation of this week's show of relative strength that kept it at its unchanged level while longer tenors recorded slim losses for the week. The steady Friday retreat unfolded alongside a sloppy equity session that saw a lot of big moves in individual stocks, masked by little headline change in the S&P 500 (+0.2%). Crude oil dipped, narrowing this week's gain to $0.66/bbl while the U.S. Dollar Index rose 0.1% to 98.42, gaining 0.4% for the week.
• Yield Check:
  • 2-yr: UNCH at 3.48% (UNCH for the week)
  • 3-yr: +1 bp to 3.55% (+2 bps this week)
  • 5-yr: +2 bps to 3.74% (+4 bps this week)
  • 10-yr: +2 bps to 4.19% (+5 bps this week)
  • 30-yr: +2 bps to 4.86% (+4 bps this week)

• News:
  • OPEC+ is not expected to make any changes to its output plans during this Sunday's policy meeting.
  • South Korea's December Manufacturing PMI hit 50.1 (last 49.4).
  • Singapore's Q4 GDP expanded 1.9% qtr/qtr (last 2.4%), growing 5.7% yr/yr (last 4.3%). Q4 URA Property Index was up 0.7% qtr/qtr (last 0.9%).
  • Hong Kong's November Retail Sales rose 6.5% yr/yr (last 6.9%).
  • Australia's December Manufacturing PMI hit 51.6 (expected 52.2; last 51.6).
  • India's December Manufacturing PMI hit 55.0 (expected 55.7; last 56.6).
  • Eurozone's December Manufacturing PMI hit 48.8 (expected 49.2; last 49.6). November M3 Money Supply rose 3.0% yr/yr (expected 2.7%; last 2.8%), November Private Sector Loans increased 2.9% yr/yr (expected 2.8%; last 2.8%), and November Loans to nonfinancials were up 3.1% yr/yr (last 2.9%).
  • Germany's December Manufacturing PMI hit 47.0 (expected 47.7; last 48.2).
  • U.K.'s December Manufacturing PMI hit 50.6 (expected 51.2; last 51.2). December Nationwide HPI was down 0.4% m/m (expected 0.1%; last 0.3%) but up 0.6% yr/yr (expected 1.2%; last 1.8%).
  • France's December Manufacturing PMI hit 50.7 (expected 50.6; last 47.8).
  • Italy's December Manufacturing PMI hit 47.9 (expected 50.0; last 50.6).
  • Spain's December Manufacturing PMI hit 49.6 (expected 51.2; last 51.5).
• Today's Data:
  • The S&P Global U.S. Manufacturing PMI hit 51.8 in the final reading for December, unchanged from the preliminary reading and down from 52.2 in November.
• Commodities:
  • WTI crude: -0.1% to $57.34/bbl
  • Gold: -0.3% to $4329.00/ozt
  • Copper: +0.2% to $5.69/lb
• Currencies:
  • EUR/USD: -0.2% to 1.1719
  • GBP/USD: -0.1% to 1.3453
  • USD/CNH: -0.1% to 6.9704
  • USD/JPY: +0.2% to 156.87
• The Week Ahead:
  • Monday: December ISM Manufacturing Index (Briefing.com consensus 48.4%; prior 48.2%) at 10:00 ET
  • Tuesday: Final December S&P Global U.S. Services PMI (flash 52.9; November 54.1) at 9:45 ET
  • Wednesday: Weekly MBA Mortgage Index (prior NA) at 7:00 ET; December ADP Employment Change (Briefing.com consensus 45,000; prior -32,000) at 8:15 ET; December ISM Non-Manufacturing Index (Briefing.com consensus 52.2%; prior 52.6%), November Factory Orders (Briefing.com consensus -1.0%; prior NA), November job openings (prior 7.670 mln), and November Business Inventories (prior NA) at 10:00 ET; and weekly crude oil inventories (prior 1.93 mln) at 10:30 ET
  • Thursday: Preliminary Q3 Productivity (Briefing.com consensus 2.5%; prior 3.3%), preliminary Q3 Unit Labor Costs (Briefing.com consensus 0.8%; prior 1.0%), October Trade Balance (Briefing.com consensus -$61.3 bln; prior -$59.6 bln), weekly Initial Claims (Briefing.com consensus 217,000; prior 199,000), and Continuing Claims (prior 1.866 mln) at 8:30 ET; October Wholesale Inventories (Briefing.com consensus 0.2%; prior 0.5%) at 10:00 ET; weekly natural gas inventories (prior -38 bcf) at 10:30 ET; and November Consumer Credit (Briefing.com consensus $10.3 bln; prior $9.2 bln) at 15:00 ET
  • Friday: December Nonfarm Payrolls (Briefing.com consensus 55,000; prior 64,000), Nonfarm Private Payrolls (Briefing.com consensus 50,000; prior 69,000), Unemployment Rate (Briefing.com consensus 4.5%; prior 4.6%), Average Hourly Earnings (Briefing.com consensus 0.3%; prior 0.1%), Average Workweek (Briefing.com consensus 34.3; prior 34.3), September Housing Starts (Briefing.com consensus 1.320 mln; prior 1.307 mln), September Building Permits (Briefing.com consensus 1.340 mln; prior 1.312 mln), October Housing Starts (Briefing.com consensus 1.340 mln), and October Building Permits (Briefing.com consensus 1.355 mln) at 8:30 ET; and preliminary January University of Michigan Consumer Sentiment (Briefing.com consensus 53.0; prior 52.9) at 10:00 ET

Long End Remains Behind

• U.S. Treasuries trade just above session lows that were reached about 30 minutes ago with longer tenors remaining behind while the 2-yr note remains supported by its flat line. The selling in longer tenors puts the 30-yr yield on track for its highest settlement since early September, and it comes despite a bumpy start to the year in the equity market as the S&P 500 returns to its flat line after giving back a solid starting gain.
• Yield Check:
  • 2-yr: -1 bp to 3.47%
  • 3-yr: UNCH at 3.54%
  • 5-yr: +1 bp to 3.73%
  • 10-yr: +2 bps to 4.18%
  • 30-yr: +2 bps to 4.86%

Longer Tenors Turn Lower

• U.S. Treasuries hold slim losses after a slow retreat from their early highs. Treasuries opened with modest gains, but there was no follow-through buying after the higher start. The market began drifting down from its starting levels about 30 minutes after the open with longer tenors turning negative while the short end is ahead. This week's data slate was capped with the release of the final S&P Global U.S. Manufacturing PMI, which hit 51.8, unchanged from the flash reading. Equities are off to a higher start with the S&P 500 (+0.4%) trailing the Nasdaq (+0.6%).
• Yield Check:
  • 2-yr: UNCH at 3.48%
  • 3-yr: UNCH at 3.54%
  • 5-yr: UNCH at 3.73%
  • 10-yr: +1 bp to 4.17%
  • 30-yr: +2 bps to 4.86%

Inching Higher to Begin 2026

• U.S. Treasuries are on track for a slightly higher start to the new year with issues in the belly expected to show some relative strength in the early going. Treasury futures faced some early weakness during the Asian session, but the slim losses were reversed swiftly once the focus shifted to action in Europe. The overall volume has remained on the light side due to some more lingering market closures in Japan and China, but the schedule will begin normalizing early next week. The modest early strength in Treasuries comes despite light selling in other sovereign debt. Global equities, meanwhile, are starting the year in an upbeat fashion with technology names among the leaders. Economic data released overnight included generally disappointing final December Manufacturing PMI readings from major European economies while the U.S. slate will also feature the final December Manufacturing PMI at 9:45 ET, followed by September Construction Spending (Briefing.com consensus -0.1%; prior 0.2%) at 10:00 ET. Crude oil holds a modest loss while the U.S. Dollar Index is up 0.1% at 98.45.
• Yield Check:
  • 2-yr: -1 bp to 3.47%
  • 3-yr: -1 bp to 3.53%
  • 5-yr: -1 bp to 3.71%
  • 10-yr: -1 bp to 4.15%
  • 30-yr: UNCH at 4.84%

• News:
  • OPEC+ is not expected to make any changes to its output plans during this Sunday's policy meeting.
  • South Korea's December Manufacturing PMI hit 50.1 (last 49.4).
  • Singapore's Q4 GDP expanded 1.9% qtr/qtr (last 2.4%), growing 5.7% yr/yr (last 4.3%). Q4 URA Property Index was up 0.7% qtr/qtr (last 0.9%).
  • Hong Kong's November Retail Sales rose 6.5% yr/yr (last 6.9%).
  • Australia's December Manufacturing PMI hit 51.6 (expected 52.2; last 51.6).
  • India's December Manufacturing PMI hit 55.0 (expected 55.7; last 56.6).
  • Eurozone's December Manufacturing PMI hit 48.8 (expected 49.2; last 49.6). November M3 Money Supply rose 3.0% yr/yr (expected 2.7%; last 2.8%), November Private Sector Loans increased 2.9% yr/yr (expected 2.8%; last 2.8%), and November Loans to nonfinancials were up 3.1% yr/yr (last 2.9%).
  • Germany's December Manufacturing PMI hit 47.0 (expected 47.7; last 48.2).
  • U.K.'s December Manufacturing PMI hit 50.6 (expected 51.2; last 51.2). December Nationwide HPI was down 0.4% m/m (expected 0.1%; last 0.3%) but up 0.6% yr/yr (expected 1.2%; last 1.8%).
  • France's December Manufacturing PMI hit 50.7 (expected 50.6; last 47.8).
  • Italy's December Manufacturing PMI hit 47.9 (expected 50.0; last 50.6).
  • Spain's December Manufacturing PMI hit 49.6 (expected 51.2; last 51.5).
• Commodities:
  • WTI Crude: -0.6% to $57.05/bbl
  • Gold: +1.4% to $4400.80/ozt
  • Copper: +0.7% to $5.724/lb
• Currencies:
  • EUR/USD: -0.2% to 1.1723
  • GBP/USD: -0.2% to 1.3446
  • USD/CNH: -0.2% to 6.9676
  • USD/JPY: +0.2% to 156.92
• Data out Today:
  • 9:45 ET: Final December S&P Global U.S. Manufacturing PMI (prior 51.8)
  • 10:00 ET: September Construction Spending (Briefing.com consensus -0.1%; prior 0.2%)

Strong Year Capped With Modest Dip

• U.S. Treasuries finished 2025 on a modestly lower note with the 10-yr yield settling near the midpoint of this year's range while the 2-yr yield finished not far above its 2025 low as the Fed made three cuts to the fed funds rate range since the end of 2024. Today's session was largely uneventful, save for a couple waves of selling that lifted yields to their highest levels of the week. The trading day started with slim gains across the curve, but the entire complex slid after the latest weekly jobless claims report showed only the second sub-200,000 reading of initial claims (199,000) this year. The positive signal about the health of the labor market sent Treasuries to lows during the opening hour while the rest of the morning saw a slow bounce that found resistance once the complex approached yesterday's closing levels. There was some more selling during the final hour of action, but even with late slide that was presumably owed to year-end rebalancing, the 10-yr yield was confined to a four-basis point range. The benchmark yield finished 2025 about 20-basis points shy of the midpoint of this year's 92-basis point range while the 2-yr yield finished just nine basis points above its October low, and down 95 basis points from its January peak. The long bond underperformed with its yield finishing ten basis points above the midpoint of this year's 81-basis point range, bearing some resemblance to what has been seen in Japan as the Bank of Japan tightens policy after nearly three decades of zero interest rate policy. With JGB rates reaching 30-year highs, investors in the saver nation have had a growing incentive to repatriate some of their foreign investments that can now earn a return at home without currency risk. This dynamic should continue next year with the market expecting at least one more hike from the BoJ in 2026. Crude oil retreated, losing nearly $15/bbl for the year, while the U.S. Dollar Index rose 0.2% to 98.38, narrowing its December loss to 1.1%. The Index fell 9.3% in 2025. Bond and equity markets will be closed for New Year's Day tomorrow, followed by a full session on Friday. Happy New Year!
• Yield Check:
  • 2-yr: +3 bps to 3.48% (-1 bp in December; -77 bps in 2025)
  • 3-yr: +3 bps to 3.54% (+5 bps in December; -74 bps in 2025)
  • 5-yr: +4 bps to 3.73% (+13 bps in December; -65 bps in 2025)
  • 10-yr: +4 bps to 4.17% (+15 bps in December; -40 bps in 2025)
  • 30-yr: +3 bps to 4.84% (+17 bps in December; +5 bps in 2025)

• News:
  • The Chinese government plans to continue issuing trade-in subsidies for auto purchases in 2026 and will expand the program to include digital and smart products.
  • China Securities Journal reported that domestic banks will slash business loan rates below 3.0%.
  • China's December Manufacturing PMI hit 50.1 (expected 49.2; last 49.2) and Non-Manufacturing PMI hit 50.2 (expected 49.6; last 49.5). December RatingDog Manufacturing PMI hit 50.1 (expected 49.8; last 49.9).
  • South Korea's December CPI was up 0.3% m/m (expected 0.2%; last -0.2%), rising 2.3% yr/yr, as expected (last 2.4%).
  • Hong Kong's November M3 Money Supply increased 4.5% yr/yr (last 3.5%).
  • Singapore's November Bank Lending reached SGD873.1 bln (last SGD866.1 bln).
  • Swiss November Official Reserve Assets reached CHF852.4 bln (last CHF844.9 bln).
• Today's Data:
  • Initial jobless claims for the week ending December 27 decreased by 16,000 to 199,000 (Briefing.com consensus 226,000) from last week's revised rate of 215,000 (from 214,000), while continuing claims for the week ending December 20 decreased by 47,000 from last week's revised rate of 1.913 million (from 1.923 million) to 1.866 million.
    • The key takeaway from the report is that initial claims decreased unexpectedly, coming in below 200,000 for just the second time this year. This should be encouraging to a market that has grown more sensitive to signals from the labor market.
  • Weekly crude oil inventories decreased by 1.93 mln barrels after increasing by 405,000 barrels a week ago.
  • Weekly natural gas inventories decreased by 38 bcf after decreasing by 166 bcf a week ago.
• Commodities:
  • WTI crude: -0.6% to $57.62/bbl
  • Gold: -1.0% to $4342.30/ozt
  • Copper: -1.7% to $5.68/lb
• Currencies:
  • EUR/USD: -0.1% to 1.1740
  • GBP/USD: -0.1% to 1.3456
  • USD/CNH: -0.2% to 6.9769
  • USD/JPY: +0.3% to 156.84
• The Day Ahead:
  • Bond and equity markets closed for New Year's Day
• Friday:
  • 9:45 ET: Final December S&P Global U.S. Manufacturing PMI (prior 51.8)
  • 10:00 ET: September Construction Spending (Briefing.com consensus -0.1%; prior 0.2%)