Bond Market Update

2-Yr Yield Hits Five-Week High

• U.S. Treasuries had a mixed showing on Thursday with relative weakness in the front end lifting the 2-yr yield to its highest settlement since early December while the long bond outperformed, recording its third consecutive gain. The short end lagged from the start after a night that was rife with economic data, including strong social financing figures from China (CNY2.21 trln; expected CNY2.00 trln) and a solid November growth reading from the U.K. (0.3%; expected 0.1%) that boosted hopes for a strong start to the year in the British economy. Treasuries retreated from their starting levels after the domestic batch of data was also stronger than expected. Initial claims (198,000) fell back below the 200,000 mark while manufacturing surveys from the Philadelphia (12.6; Briefing.com consensus -5.0) and New York (7.7; Briefing.com consensus 1.0) Fed regions showed growth in activity. The 10-yr note and shorter tenors spent the rest of the session in the red, finishing just above their morning lows while the long bond eked out a slim gain. The divergence lifted the 2-yr yield to its highest settlement in five weeks while the 30-yr yield settled at a five-week low, stopping right above its 50-day moving average (4.774%). It is worth noting that Citigroup reported this afternoon that its credit loss component for December increased by 40 bps to 2.51% with delinquencies of up to 30 days growing 21 bps month-over-month to 1.33%. This points to recent stress among consumers, so the market will be curious to see if these delinquencies become more entrenched. The bank's delinquencies of 30+ days ticked up by just two basis points to 1.42% in December. Crude oil reversed from a five-day rally, falling toward its 50-day moving average (58.62) while the U.S. Dollar Index rose 0.2% to 99.32.
• Yield Check:
  • 2-yr: +5 bps to 3.56%
  • 3-yr: +6 bps to 3.62%
  • 5-yr: +5 bps to 3.76%
  • 10-yr: +2 bps to 4.16%
  • 30-yr: -1 bp to 4.79%

• News:
  • Treasury Secretary Bessent said that recent weakness in the Japanese yen and the Korean won do not match the fundamental standing of the two economies.
  • Goldman Sachs (GS) and Morgan Stanley (MS) beat Q4 EPS expectations with Goldman raising its dividend.
  • Philadelphia Fed President (FOMC voter) Paulson spoke in favor of holding the fed funds rate range steady.
  • Shipper Matson said that cargo flow from China saw higher than expected rates and volume.
  • The Bank of Korea left its policy rate at 2.50%, as expected.
  • The People's Bank of China lowered its structural policy tool rates and relending rates by 25 basis points.
  • There was some speculation that South Korea may not be able to reach its annual $20 bln investment target in the U.S.
  • China's December New Loans reached CNY910.0 bln (expected CNY820.0 bln; last CNY390.0 bln). December Outstanding Loans grew 6.4% yr/yr (expected 6.3%; last 6.4%) and total social financing reached CNY2.21 trln (expected CNY2.00 trln; last CNY2.49 trln).
  • Japan's December PPI was up 0.1% m/m, as expected (last 0.3%), rising 2.4% yr/yr, as expected (last 2.7%).
  • South Korea's December trade surplus reached $12.17 bln (expected surplus of $12.18 bln; last surplus of $9.74 bln) as imports grew 4.6% yr/yr, as expected (last 1.1%), and exports rose 13.3% yr/yr (expected 13.4%; last 8.4%).
  • India's December trade deficit reached $25.04 bln (last deficit of $24.53 bln).
  • Australia's MI Inflation Expectations slowed to 4.6% from 4.7%.
  • Eurozone's November trade surplus reached EUR9.9 bln (expected surplus of EUR14.8 bln; last surplus of EUR17.9 bln). November Industrial Production was up 0.7% m/m (expected 0.5%; last 0.7%), rising 2.5% yr/yr (expected 2.0%; last 1.7%).
  • Germany's December WPI was down 0.2% m/m (expected 0.2%; last 0.3%) but up 1.2% yr/yr (last 1.5%).
  • U.K.'s November GDP expanded 0.3% m/m (expected 0.1%; last -0.1%), growing 1.4% yr/yr (expected 1.1%; last 1.1%).
  • France's December CPI ticked up 0.1% m/m, as expected (last 0.1%), rising 0.8% yr/yr, as expected (last 0.9%).
  • Italy's November Industrial Production was up 1.5% m/m (expected 0.6%; last -1.0%), rising 1.4% yr/yr (expected -0.6%; last -0.2%). November trade surplus reached EUR5.078 bln (expected surplus of EUR5.220 bln; last surplus of EUR4.183 bln).
  • Spain's December CPI was up 0.3% m/m, as expected (last 0.0%), rising 2.9% yr/yr, as expected (last 3.0%).
• Today's Data:
  • Initial jobless claims for the week ending January 10 decreased by 9,000 to 198,000 (Briefing.com consensus: 210,000). Continuing jobless claims for the week ending January 3 decreased by 19,000 to 1.884 million.
    • The key takeaway from the report is that it corroborates a low firing-low hiring environment that will keep the Fed on watch, but also on hold in terms of a rate cut this month and possibly until June, which is when the fed funds futures market is projecting the first cut in 2026.
  • The Philadelphia Fed survey rose to 12.6 in January (Briefing.com consensus -5.0) from a revised -8.8 (from -10.2) in December.
  • The Empire State Manufacturing survey rose to 7.7 in January (Briefing.com consensus 1.0) from a revised -3.7 (from -3.9) in December.
  • Import prices rose 0.4% between October and November while Import Prices ex-fuel were up 0.6%. Export prices increased 0.5% between October and November while Export Prices ex-agriculture increased 0.4%.
  • Weekly natural gas inventories decreased by 71 bcf after decreasing by 119 bcf a week ago.
• Commodities:
  • WTI crude: -4.5% to $59.09/bbl
  • Gold: -0.2% to $4624.10/ozt
  • Copper: -1.0% to $5.99/lb
• Currencies:
  • EUR/USD: -0.3% to 1.1614
  • GBP/USD: -0.4% to 1.3384
  • USD/CNH: -0.1% to 6.9625
  • USD/JPY: +0.1% to 158.53
• The Day Ahead:
  • 9:15 ET: December Industrial Production (Briefing.com consensus 0.2%; prior 0.2%) and Capacity Utilization (Briefing.com consensus 76.0%; prior 76.0%)
  • 10:00 ET: January NAHB Housing Market Index (Briefing.com consensus 40; prior 39)

Sitting Near Lows

• U.S. Treasuries trade not far from their lows after backpedaling from their opening levels. Shorter tenors have underperformed throughout the day with the 2-yr yield on the verge of its highest settlement since early December. Meanwhile, the long bond has continued resisting today's intraday pressure, which leaves it with a modest gain. The 30-yr bond retreated alongside other tenors at the start but found support once its yield approached its 200-day moving average (4.801%). The 30-yr yield is now back near its 50-day moving average (4.774%), sitting at its lowest level in five weeks.
• Yield Check:
  • 2-yr: +5 bps to 3.56%
  • 3-yr: +5 bps to 3.61%
  • 5-yr: +4 bps to 3.76%
  • 10-yr: +2 bps to 4.16%
  • 30-yr: -1 bp to 4.78%

Short End Behind

• Shorter-dated U.S. Treasuries trade not far above their morning lows while the long end outperforms with the 30-yr bond holding a slim gain. Treasuries faced some selling in immediate reaction to today's batch of economic data, which showed another slip below the 200,000 mark in weekly Initial Claims (198,000), suggesting ongoing resilience in the labor market. The post-data losses were recovered quickly but the past 30 minutes have seen some renewed pressure that has returned shorter tenors to their lows. Equities are off to a higher start with the S&P 500 (+0.5%) trailing the Nasdaq (+0.7%).
• Yield Check:
  • 2-yr: +4 bps to 3.55%
  • 3-yr: +4 bps to 3.60%
  • 5-yr: +3 bps to 3.75%
  • 10-yr: +1 bp to 4.15%
  • 30-yr: -1 bp to 4.78%

Data Recon 

• Initial jobless claims for the week ending January 10 decreased by 9,000 to 198,000 (Briefing.com consensus: 210,000). Continuing jobless claims for the week ending January 3 decreased by 19,000 to 1.884 million.
  • The key takeaway from the report is that it corroborates a low firing-low hiring environment that will keep the Fed on watch, but also on hold in terms of a rate cut this month and possibly until June, which is when the fed funds futures market is projecting the first cut in 2026.
• Yield Check:
  • 2-yr: +4 bps to 3.55%
  • 3-yr: +4 bps to 3.60%
  • 5-yr: +4 bps to 3.75%
  • 10-yr: +2 bps to 4.16%
  • 30-yr: -1 bp to 4.79%

Pulling Back

• U.S. Treasuries are on track for a modestly lower start after two days of gains in all tenors. Treasury futures began inching lower in early evening action with pressure intensifying as the night went on. That said, the overall movement has been limited while other sovereign debt is little changed despite a barrage of data from Asia and Europe. China's total social financing exceeded December expectations while the U.K. reported strong growth for November with some analysts speculating that the modest momentum could have carried into the start of 2026. The U.S. session will see the release of a few reports at 8:30 ET, though market impact is likely to be limited. Crude oil has reversed from its highest level since late October while the U.S. Dollar Index is up 0.1% at 99.18.
• Yield Check:
  • 2-yr: +2 bps to 3.53%
  • 3-yr: +2 bps to 3.58%
  • 5-yr: +1 bp to 3.73%
  • 10-yr: UNCH at 4.14%
  • 30-yr: -1 bp to 4.79%

• News:
  • U.S. Treasury Secretary Bessent said that recent weakness in the Japanese yen and the Korean won do not match the fundamental standing of the two economies.
  • Goldman Sachs (GS) and Morgan Stanley (MS) beat Q4 EPS expectations with Goldman raising its dividend.
  • Shipper Matson said that cargo flow from China saw higher than expected rates and volume.
  • The Bank of Korea left its policy rate at 2.50%, as expected.
  • The People's Bank of China lowered its structural policy tool rates and relending rates by 25 basis points.
  • There was some speculation that South Korea may not be able to reach its annual $20 bln investment target in the U.S.
  • China's December New Loans reached CNY910.0 bln (expected CNY820.0 bln; last CNY390.0 bln). December Outstanding Loans grew 6.4% yr/yr (expected 6.3%; last 6.4%) and total social financing reached CNY2.21 trln (expected CNY2.00 trln; last CNY2.49 trln).
  • Japan's December PPI was up 0.1% m/m, as expected (last 0.3%), rising 2.4% yr/yr, as expected (last 2.7%).
  • South Korea's December trade surplus reached $12.17 bln (expected surplus of $12.18 bln; last surplus of $9.74 bln) as imports grew 4.6% yr/yr, as expected (last 1.1%), and exports rose 13.3% yr/yr (expected 13.4%; last 8.4%).
  • India's December trade deficit reached $25.04 bln (last deficit of $24.53 bln).
  • Australia's MI Inflation Expectations slowed to 4.6% from 4.7%.
  • Eurozone's November trade surplus reached EUR9.9 bln (expected surplus of EUR14.8 bln; last surplus of EUR17.9 bln). November Industrial Production was up 0.7% m/m (expected 0.5%; last 0.7%), rising 2.5% yr/yr (expected 2.0%; last 1.7%).
  • Germany's December WPI was down 0.2% m/m (expected 0.2%; last 0.3%) but up 1.2% yr/yr (last 1.5%).
  • U.K.'s November GDP expanded 0.3% m/m (expected 0.1%; last -0.1%), growing 1.4% yr/yr (expected 1.1%; last 1.1%). November Manufacturing Production was up 2.1% m/m (expected 0.4%; last 0.4%), rising 2.1% yr/yr (expected -0.3%; last -0.2%), November Industrial Production was up 1.1% m/m (expected 0.2%; last 1.3%), rising 2.3% yr/yr (expected -0.4%; last 0.4%), November Construction Output was down 1.3% m/m (expected -0.3%; last -1.2%), falling 1.1% yr/yr (expected 0.1%; last 0.9%).
  • France's December CPI ticked up 0.1% m/m, as expected (last 0.1%), rising 0.8% yr/yr, as expected (last 0.9%).
  • Italy's November Industrial Production was up 1.5% m/m (expected 0.6%; last -1.0%), rising 1.4% yr/yr (expected -0.6%; last -0.2%). November trade surplus reached EUR5.078 bln (expected surplus of EUR5.220 bln; last surplus of EUR4.183 bln).
  • Spain's December CPI was up 0.3% m/m, as expected (last 0.0%), rising 2.9% yr/yr, as expected (last 3.0%).
• Commodities:
  • WTI Crude: -4.0% to $59.53/bbl
  • Gold: -0.3% to $4621.50/ozt
  • Copper: -0.6% to $6.018/lb
• Currencies:
  • EUR/USD: -0.1% to 1.1628
  • GBP/USD: -0.2% to 1.3408
  • USD/CNH: UNCH at 6.9636
  • USD/JPY: +0.1% to 158.58
• Data out Today:
  • 8:30 ET: Weekly Initial Claims (Briefing.com consensus 210,000; prior 208,000), Continuing Claims (prior 1.914 mln), January Philadelphia Fed survey (Briefing.com consensus -5.0; prior -10.2), January Empire State Manufacturing survey (Briefing.com consensus 1.0; prior -3.9), and November Import/Export prices
  • 10:30 ET: Weekly natural gas inventories (prior -119 bcf)
  • 16:00 ET: November Net Long-Term TIC Flows (prior $17.5 bln)