Bond Market Update

Bounce Attempt Falters

• U.S. Treasuries tried to bounce from their midweek swoon, but steady intraday pressure resulted in modest losses across the complex. The trading day started with gains that were paced by the belly after a night that saw a mixed showing from global equities and some upward pressure on the price of oil. The U.S.-Iran conflict remained in focus after President Trump said that the ceasefire will be extended to give Iranian officials more time to present a unified proposal. Treasuries began slipping from their opening highs immediately after the start with 2s and 5s returning to their flat lines during the initial hour of trade while longer tenors also backed down from their highs but resisted some of the overall pressure. The selling continued into the early afternoon with the market rising off lows thanks to a strong $13 bln 20-yr bond reopening. The late bounce helped 10s and 30s finish just below their flat lines while shorter tenors recorded bigger losses. Crude oil climbed toward $95/bbl while the U.S. Dollar Index rose 0.2% to 98.60.
• Yield Check:
  • 2-yr: +1 bp to 3.79%
  • 3-yr: +2 bps to 3.81%
  • 5-yr: +1 bp to 3.92%
  • 10-yr: UNCH at 4.29%
  • 30-yr: UNCH at 4.90%

• News:
  • Treasury Secretary Bessent said that foreign exchange swap lines have been requested by many allies in the Gulf and some in Asia.
  • Expectations for a May rate hike from the Reserve Bank of New Zealand increased to about 50% after yesterday's release of the second consecutive above-target CPI reading.
  • German travel operator TUI lowered its guidance due to increased energy prices and war-related uncertainty.
  • Lufthansa is scrapping about 20,000 short-haul flights through October due to a tight supply of jet fuel.
  • Japan's March trade surplus reached JPY90 bln (expected surplus of JPY230 bln; last deficit of JPY370 bln) as imports grew 10.9% yr/yr (expected 7.1%; last 10.3%) and exports rose 11.7% yr/yr (expected 11.0%; last 4.0%).
  • South Korea's March PPI was up 1.6% m/m (last 0.6%), rising 4.1% yr/yr (last 2.5%). 
  • Australia's March MI Leading Index was down 0.1% m/m (last -0.1%).
  • Eurozone's 2025 debt-to-GDP ratio increased to 87.8% from 87.0% and 2025 budget-to-GDP ratio ticked up to -2.9% from -3.0%. Flash April Consumer Confidence fell to -20.6 (expected -18.0) from -16.4.
  • U.K.'s March CPI was up 0.7% m/m (expected 0.6%; last 0.4%), rising 3.3% yr/yr, as expected (last 3.0%). March Input PPI was up 4.4% m/m (expected 2.8%; last 0.9%), rising 5.4% yr/yr (last 0.7%). Output PPI was up 0.9% m/m (expected 1.0%; last -0.5%), rising 2.6% yr/yr (last 1.8%). March Core CPI was up 0.4% m/m (expected 0.5%; last 0.6%), rising 3.1% yr/yr (expected 3.2%; last 3.2%).
• Today's Data:
  • The weekly MBA Mortgage Index rose 7.9% to follow last week's 1.8% increase. The Purchase Index was up 10.1% while the Refinance Index increased 5.9%.
  • Weekly crude oil inventories increased by 1.93 mln barrels after decreasing by 913,000 barrels a week ago.
  • $13 bln 20-year Treasury bond reopening results (prior 12-auction average):
    • High yield: 4.883% (4.797%).
    • Bid-to-cover: 2.68 (2.64).
    • Indirect bid: 67.4% (64.7%).
    • Direct bid: 22.9% (23.2%).
• Commodities:
  • WTI crude: +3.9% to $93.01/bbl
  • Gold: +0.7% to $4753.80/ozt
  • Copper: +2.0% to $6.13/lb
• Currencies:
  • EUR/USD: -0.3% to 1.1709
  • GBP/USD: +0.1% to 1.3506
  • USD/CNH: +0.1% to 6.8316
  • USD/JPY: +0.1% to 159.48
• The Day Ahead:
  • 8:30 ET: Weekly Initial Claims (Briefing.com consensus 212,000; prior 207,000), Continuing Claims (prior 1.818 mln)
  • 9:45 ET: Flash S&P Global U.S. Manufacturing PMI (prior 52.3) and flash S&P Global U.S. Services PMI (prior 49.8)
  • 10:30 ET: Weekly natural gas inventories (prior +59 bcf)

Auction Reaction

• U.S. Treasuries sit on their lows with the 2-yr yield inching to a fresh high for the week while yields on 10s and 30s remain below yesterday's highs thanks to a continued show of relative strength from longer tenors. Today's intraday selling has taken place alongside a rise in the price of oil, which is now creeping toward $94/bbl. Equities, however, have been able to maintain their gains despite the headwind from crude oil. Back to Treasuries, the outperformance in longer tenors received some additional fuel from a strong $13 bln 20-yr bond reopening. The sale drew a high yield of 4.883%, which stopped through the when-issued yield by nearly a basis point while the bid-to-cover ratio (2.68x vs 2.64x average) and indirect takedown (67.4% vs 64.7% average) were above average.
• Yield Check:
  • 2-yr: +2 bps to 3.80%
  • 3-yr: +2 bps to 3.82%
  • 5-yr: +1 bp to 3.92%
  • 10-yr: UNCH at 4.30%
  • 30-yr: UNCH at 4.90%

Treasury Auction Results 

• $13 bln 20-year Treasury bond reopening:
  • Auction results:
    • High yield: 4.883% (When-Issued: 4.892%)
    • Bid-to-cover: 2.68
    • Indirect bid: 67.4%
    • Direct bid: 22.9%
  • Average results of previous 12 auctions:
    • High yield: 4.797%
    • Bid-to-cover: 2.64
    • Indirect bid: 64.7%
    • Direct bid: 23.2%

Treasury Auction Preview

• $13 bln 20-year Treasury bond reopening (results at 13:00 ET):
  • Prior auction results:
    • High yield: 4.817%
    • Bid-to-cover: 2.76
    • Indirect bid: 69.2%
    • Direct bid: 21.6%
  • Average results of previous 12 auctions:
    • High yield: 4.797%
    • Bid-to-cover: 2.64
    • Indirect bid: 64.7%
    • Direct bid: 23.2%

Opening Rally Meets Resistance

• U.S. Treasuries remain in positive territory, though 5s and 2s have dipped from the early highs while 10s and 30s remain closer to their best levels of the morning. The early pullback from highs took place alongside an uptick in the price of oil, which is rising toward $92/bbl. Equities, meanwhile, started the day in positive territory and they continue holding their early gains with the S&P 500 (+0.8%) now down just 0.1% for the week.
• Yield Check:
  • 2-yr: UNCH at 3.78%
  • 3-yr: +1 bp to 3.80%
  • 5-yr: UNCH at 3.90%
  • 10-yr: -1 bp to 4.28%
  • 30-yr: -1 bp to 4.89%