Bond Market Update

Resurrected From Lower Start Ahead of Good Friday

• U.S. Treasuries recorded slim gains on Thursday, putting together a resilient showing from a modestly lower start to the trading day. The entire complex started on the defensive after a night that saw aggressive selling in global equities and sovereign debt, headlined by Japan's 10-yr yield reaching its highest level in more than 20 years. The overall selling took place alongside a renewed rally in the price of oil, as the market reconsidered yesterday's Iran-related optimism. President Trump said during last night's televised address that crippling strikes on Iran will continue in the coming weeks if negotiations fail. He also said that countries that receive cargo shipped through the Strait of Hormuz should ensure the safety of the route rather. The comments weighed on risk sentiment, but markets were eager to bounce during the U.S. session with Treasuries turning positive in the late morning while equities recaptured their losses by the time Treasuries settled for the day. This week will end in an unusual fashion with NYSE and most global equity markets closed for Good Friday. The Treasury market will be open until noon tomorrow, but there will be no intraday coverage, since Briefing.com follows the NYSE holiday schedule. The Bureau of Labor Statistics will release the March Employment Situation report tomorrow at 8:30 ET, which is expected to show a rebound in Nonfarm Payrolls (Briefing.com consensus 51,000; prior -92,000) and Nonfarm Private Payrolls (Briefing.com consensus 51,000; prior -86,000), no change in the Unemployment Rate (Briefing.com consensus 4.4%; prior 4.4%), steady Average Hourly Earnings growth (Briefing.com consensus 0.4%; prior 0.4%), and no change in Average Workweek (Briefing.com consensus 34.3; prior 34.3). Crude oil climbed above $111/bbl with WTI crude overtaking Brent crude by about $3/bbl, while the U.S. Dollar Index rose 0.4% to 100.01, trimming this week's loss to 0.2%.
• Yield Check:
  • 2-yr: UNCH at 3.80% (-12 bps week-to-date)
  • 3-yr: UNCH at 3.83% (-11 bps week-to-date)
  • 5-yr: -1 bp to 3.95% (-12 bps week-to-date)
  • 10-yr: -1 bp to 4.31% (-13 bps week-to-date)
  • 30-yr: -1 bp to 4.89% (-9 bps week-to-date)

• News:
  • Attorney General Bondi was relieved of her duties. Deputy Attorney Todd Blanche will become Acting Attorney General.
  • President Trump is expected to issue executive orders pertaining to steel and aluminum tariffs this afternoon.
  • Japan sold 10-yr JGBs to weak demand, sending the 10-yr yield to a level not seen in more than 20 years.
  • Foreign investors sold Japanese equities and JGBs aggressively into Japan's fiscal year end.
  • China will increase its reserves of frozen pork after hog prices reached an eight-year low.
  • China Securities Journal noted that the issuance of yuan-denominated bonds by foreign entities doubled in Q1.
  • Bank of England Governor Bailey cautioned against pricing in rate hikes while the European Central Bank is expected to hike rates a couple times, creating a divergence in the region's rate expectations.
  • Japan's March Monetary Base was down 11.6% yr/yr (expected -10.8%; last -10.6%).
  • South Korea's March CPI was up 0.3% m/m (expected 0.6%; last 0.3%), rising 2.2% yr/yr (expected 2.4%; last 2.0%).
  • Australia's February trade surplus reached AUD5.69 bln (expected surplus of AUD2.81 bln; last surplus of AUD2.26 bln) as imports fell 3.2% m/m (last 1.0%) and exports rose 4.9% m/m (last -1.6%).
  • India's March Manufacturing PMI hit 53.9 (expected 53.8; last 56.9).
  • France's February government budget deficit reached EUR32.1 bln (last deficit of EUR9.7 bln).
  • Italy's February Retail Sales were unchanged m/m (expected 0.3%; last 0.6%), rising 1.6% yr/yr (last 2.5%).
  • Swiss March CPI was up 0.2% m/m (expected 0.5%; last 0.6%), rising 0.3% yr/yr (expected 0.5%; last 0.1%).
• Today's Data: 
  • Initial jobless claims for the week ending March 28 fell by 9,000 to 202,000 (Briefing.com consensus 215,000) from last week's revised reading of 211,000 (from 210,000). Continuing claims increased by 25,000 to 1.841 million from last week's revised reading of 1.816 million (from 1.819 million).
    • The key takeaway from the report is that initial claims remain near the 200,000 mark, reflecting a low-firing environment.
  • The trade deficit widened to $57.3 billion in February (Briefing.com consensus -$55.8 billion) from a revised $54.7 billion deficit (from -$54.5 billion) in January. The wider gap was the result of exports being $12.6 billion more than January exports and imports being $15.2 billion more than January imports.
    • The key takeaway from the report is that February imports grew more than exports even though February nonfuel import prices (+1.1%) increased at a slower pace than non-agricultural export prices (+1.7%).
  • Weekly natural gas inventories increased by 36 bcf after decreasing by 54 bcf a week ago.
• Commodities:
  • WTI crude: +11.3% to $111.48/bbl
  • Gold: -2.8% to $4679.20/ozt
  • Copper: -1.2% to $5.58/lb
• Currencies:
  • EUR/USD: -0.5% to 1.1537
  • GBP/USD: -0.6% to 1.3224
  • USD/CNH: +0.2% to 6.8899
  • USD/JPY: +0.6% to 159.57
• The Week Ahead:
  • Monday: March ISM Non-Manufacturing Index (Briefing.com consensus 54.9%; prior 56.1%) at 10:00 ET
  • Tuesday: February Durable Orders (Briefing.com consensus 0.5%; prior 0.0%) and Durable Orders ex-transport (Briefing.com consensus 0.5%; prior 0.4%) at 8:30 ET; $58 bln 3-yr Treasury note auction results at 13:00 ET; and February Consumer Credit (Briefing.com consensus $7.0 bln; prior $8.1 bln) at 15:00 ET
  • Wednesday: Weekly MBA Mortgage Index (prior -10.4%) at 7:00 ET; weekly crude oil inventories (prior +5.45 mln) at 10:30 ET; $39 bln 10-yr Treasury note reopening results at 13:00 ET; and March FOMC Minutes at 14:00 ET
  • Thursday: Weekly Initial Claims (Briefing.com consensus 215,000; prior 202,000), Continuing Claims (prior 1.841 mln), February Personal Income (Briefing.com consensus 0.5%; prior 0.4%), Personal Spending (Briefing.com consensus 0.6%; prior 0.4%), PCE Prices (Briefing.com consensus 0.4%; prior 0.3%), Core PCE Prices (Briefing.com consensus 0.3%; prior 0.4%), Q4 GDP -- third estimate (Briefing.com consensus 0.7%; prior 0.7%), and Q4 GDP Deflator -- third estimate (Briefing.com consensus 3.8%; prior 3.8%) at 8:30 ET; February Wholesale Inventories (Briefing.com consensus -0.2%; prior NA) at 10:00 ET; weekly natural gas inventories (prior +36 bcf) at 10:30 ET; and $22 bln 30-yr Treasury bond reopening results at 13:00 ET
  • Friday: March CPI (Briefing.com consensus 0.7%; prior 0.3%) and Core CPI (Briefing.com consensus 0.3%; prior 0.2%) at 8:30 ET; February Factory Orders (Briefing.com consensus 0.5%; prior 0.1%) and preliminary April University of Michigan Consumer Sentiment (Briefing.com consensus 52.0; prior 53.3) at 10:00 ET; and March Treasury Budget (Briefing.com consensus -$160.0 bln; prior -$307.5 bln) at 14:00 ET

Rebound Sustained

• U.S. Treasuries have dipped from their morning highs, though the pullback has slowed well before the market returned to yesterday's closing levels. This leaves all tenors with modest gains and yields sitting at or near their lowest levels of the week. The 10-yr yield is down one basis point at 4.31%, down 13 basis points from Friday's settlement, while the 2-yr yield is also down 13 basis points since Friday. The market is setting up for an unusual finish to the week with NYSE and most global indices closed tomorrow for Good Friday while SIFMA has recommended a 12:00 ET close for the Treasury market. However, the Bureau of Labor Statistics still plans to release the Employment Situation report for March (Briefing.com consensus 51,000; prior -92,000) at 8:30 ET.
• Yield Check:
  • 2-yr: -1 bp to 3.79%
  • 3-yr: -1 bp to 3.82%
  • 5-yr: -1 bp to 3.94%
  • 10-yr: -1 bp to 4.31%
  • 30-yr: -1 bp to 4.89%

Opening Losses Recovered

• U.S. Treasuries have shown some early resilience, with all tenors making a run at their flat lines during the past hour. Treasuries held their modest starting losses in immediate reaction to today's data, which showed a welcome dip in jobless claims (to 202,000 from 211,000; Briefing.com consensus 215,000), and a widening in the trade deficit for February (to $57.3 billion from $54.7 billion; Briefing.com consensus -$55.8 billion), but the entire complex rallied strongly over the past hour. The bounce in Treasuries has coincided with equities climbing off their starting lows and a dip in the price of oil, though it remains north of $110/bbl.
• Yield Check:
  • 2-yr: UNCH at 3.80%
  • 3-yr: UNCH at 3.83%
  • 5-yr: -1 bp to 3.95%
  • 10-yr: UNCH at 4.32%
  • 30-yr: UNCH at 4.90%

Data Recon

• Initial jobless claims for the week ending March 28 fell by 9,000 to 202,000 (Briefing.com consensus 215,000) from last week's revised reading of 211,000 (from 210,000). Continuing claims increased by 25,000 to 1.841 million from last week's revised reading of 1.816 million (from 1.819 million).
  • The key takeaway from the report is that initial claims remain near the 200,000 mark, reflecting a low-firing environment.
• The trade deficit widened to $57.3 billion in February (Briefing.com consensus -$55.8 billion) from a revised $54.7 billion deficit (from -$54.5 billion) in January. The wider gap was the result of exports being $12.6 billion more than January exports and imports being $15.2 billion more than January imports.
  • The key takeaway from the report is that February imports grew more than exports even though February nonfuel import prices (+1.1%) increased at a slower pace than non-agricultural export prices (+1.7%).
• Yield Check:
  • 2-yr: +3 bps to 3.83%
  • 3-yr: +3 bps to 3.86%
  • 5-yr: +3 bps to 3.99%
  • 10-yr: +4 bps to 4.36%
  • 30-yr: +4 bps to 4.94%

 Testing Recent Rebound

• U.S. Treasuries are on track for a lower start that will cut into the market's gains from earlier this week. Treasury futures retreated alongside other sovereign debt overnight, responding to President Trump's address to the Nation. The president discussed the Iran campaign in his speech, saying that another barrage of attacks is planned for the coming weeks and that countries that receive cargo shipped through the Strait of Hormuz should make an effort to keep the route safe. The market hoped yesterday to hear a more conciliatory tone from the U.S. commander-in-chief, so a good chunk of Thursday's optimism has faded. Crude oil has jumped back toward $110/bbl while the U.S. Dollar Index is up 0.6% at 100.23.
• Yield Check:
  • 2-yr: +5 bps to 3.85%
  • 3-yr: +4 bps to 3.87%
  • 5-yr: +4 bps to 4.00%
  • 10-yr: +5 bps to 4.37%
  • 30-yr: +4 bps to 4.94%

• News:
  • President Trump is expected to issue executive orders pertaining to steel and aluminum tariffs this afternoon.
  • Japan sold 10-yr JGBs to weak demand, sending the 10-yr yield to a level not seen in more than 20 years.
  • Foreign investors sold Japanese equities and JGBs aggressively into Japan's fiscal year end.
  • China will increase its reserves of frozen pork after hog prices reached an eight-year low.
  • China Securities Journal noted that the issuance of yuan-denominated bonds by foreign entities doubled in Q1.
  • Bank of England Governor Bailey cautioned against pricing in rate hikes while the European Central Bank is expected to hike rates a couple times, creating a divergence in the region's rate expectations.
  • Japan's March Monetary Base was down 11.6% yr/yr (expected -10.8%; last -10.6%).
  • South Korea's March CPI was up 0.3% m/m (expected 0.6%; last 0.3%), rising 2.2% yr/yr (expected 2.4%; last 2.0%).
  • Australia's February trade surplus reached AUD5.69 bln (expected surplus of AUD2.81 bln; last surplus of AUD2.26 bln) as imports fell 3.2% m/m (last 1.0%) and exports rose 4.9% m/m (last -1.6%).
  • India's March Manufacturing PMI hit 53.9 (expected 53.8; last 56.9).
  • France's February government budget deficit reached EUR32.1 bln (last deficit of EUR9.7 bln).
  • Italy's February Retail Sales were unchanged m/m (expected 0.3%; last 0.6%), rising 1.6% yr/yr (last 2.5%). 
  • Swiss March CPI was up 0.2% m/m (expected 0.5%; last 0.6%), rising 0.3% yr/yr (expected 0.5%; last 0.1%).
• Commodities:
  • WTI Crude: +9.3% to $109.41/bbl
  • Gold: -3.9% to $4624.20/ozt
  • Copper: -2.2% to $5.523/lb
• Currencies:
  • EUR/USD: -0.6% to 1.1516
  • GBP/USD: -0.9% to 1.3195
  • USD/CNH: +0.4% to 6.9029
  • USD/JPY: +0.6% to 159.72
• Data out Today:
  • 8:30 ET: Weekly Initial Claims (Briefing.com consensus 215,000; prior 210,000), Continuing Claims (prior 1.819 mln), and February Trade Balance (Briefing.com consensus -$55.8 bln; prior -$54.5 bln)
  • 10:30 ET: Weekly natural gas inventories (prior -54 bcf)