Bond Market Update

Sliding Into February

• U.S. Treasuries began February with losses across the curve after backing down from their opening highs. The trading day started with modest gains after a night that featured some more volatility in precious metals and the release of final Manufacturing PMI readings that were mostly better than expected, though the eurozone's reading (49.5) pointed to an ongoing contraction. Treasuries began slipping from their starting levels immediately after the open, continuing their retreat from highs through the release of the S&P Global U.S. Manufacturing PMI (52.4), which accelerated from the flash reading (51.9), while the ISM Manufacturing Index (52.6%; Briefing.com consensus 48.3%) handily beat expectations, pointing to an unexpected rebound in activity. Treasuries slipped past last week's lows in reaction to the ISM report with the long bond dipping to a fresh low during the final hour of action while shorter tenors finished near their post-ISM lows. The Fed released its January Senior Loan Officer Opinion Survey in the afternoon, reporting a recent tightening in lending standards for commercial and industrial loans with growing demand from large and middle-market firms. Standards for commercial real estate loans were little changed while demand strengthened. There was no change in standards for lending to households while demand weakened. Demand also weakened for auto loans while standards eased. The survey also showed that banks are not expecting meaningful changes to lending standards over the course of 2026. In other news, Bloomberg reported that the Bureau of Labor Statistics will delay Friday's scheduled release of the Employment Situation report for January due to the government shutdown. Crude oil fell sharply after President Trump said that he remains open to a deal with Iran while the U.S. Dollar Index jumped 0.7% to 97.65, extending last week's rise off its lowest level since February 2022.
• Yield Check:
  • 2-yr: +4 bps to 3.57%
  • 3-yr: +4 bps to 3.64%
  • 5-yr: +4 bps to 3.84%
  • 10-yr: +3 bps to 4.28%
  • 30-yr: +4 bps to 4.91%

• News:
  • The U.S. Treasury announced that borrowing in Q1 will reach $574 bln, $3 bln lower than the previous estimate. Borrowing in Q2 is expected to reach $109 bln.
  • The Atlanta Fed's GDPNow forecast for Q4 GDP was left unrevised at 4.2%.
  • President Trump said that the tariff on imports from India will be reduced to 18% from 25% after India committed to stop buying oil from Russia.
  • Japan Prime Minister Takaichi's LDP and her coalition partner Ishin are projected to win over 300 seats in the Lower House next Sunday, clearing the way for a full implementation of the prime minister's agenda.
  • Official January figures from Japan's Ministry of Finance confirmed that there was no intervention during the yen's three-day rally against the dollar a week ago.
  • The European Central Bank and the Bank of England are expected to hold their policies steady on Thursday, with the market speculating that the BoE's next cut could come in April.
  • Standard & Poor's affirmed Italy's BBB+ rating and raised the outlook Positive from Stable.
  • China's January Manufacturing PMI hit 49.3 (expected 50.1; last 50.1) and Non-Manufacturing PMI hit 49.4 (expected 50.3; last 50.2). January RatingDog Manufacturing PMI hit 50.3 (expected 50.1; last 50.1).
  • Japan's final January Manufacturing PMI hit 51.5, as expected (last 50.0).
  • South Korea's January trade surplus reached $8.74 bln (expected surplus of $4.60 bln; last surplus of $12.17 bln) as imports grew 11.7% yr/yr (expected 14.6%; last 4.6%) and exports rose 33.9% (expected 29.9%; last 13.3%). January Manufacturing PMI hit 51.2 (last 50.1).
  • Singapore's Q4 Business Expectations rose to 11.00 from 8.00.
  • India's final January Manufacturing PMI hit 55.4 (expected 56.8; last 55.0).
  • Australia's final January Manufacturing PMI hit 52.3 (expected 52.4; last 51.6). January ANZ Job Advertisements rose 4.4% m/m (last -0.8%), January Inflation Gauge was up 0.2% m/m (last 1.0%), and January Commodity Prices rose 2.6% yr/yr (last -3.2%).
  • Eurozone's final January Manufacturing PMI hit 49.5 (expected 49.4; last 48.8).
  • Germany's December Retail Sales were up 0.1% m/m (expected -0.1%; last -0.5%), rising 1.5% yr/yr (last -1.6%). Final January Manufacturing PMI hit 49.1 (expected 48.7; last 47.0).
  • U.K.'s January Nationwide HPI was up 0.3% m/m, as expected (last -0.4%), rising 1.0% yr/yr (expected 0.7%; last 0.6%). January Manufacturing PMI hit 51.8 (expected 51.6; last 50.6).
  • France's final January Manufacturing PMI hit 51.2 (expected 51.0; last 50.7).
  • Italy's January Manufacturing PMI hit 48.1 (expected 48.5; last 47.9).
  • Spain's January Manufacturing PMI hit 49.2 (expected 49.9; last 49.6).
  • Swiss December Retail Sales rose 2.9% yr/yr (expected 2.5%; last 1.7%). January Manufacturing PMI hit 48.8 (expected 47.2; last 45.8).
• Today's Data:
  • The ISM Manufacturing Index checked in at 52.6% for January (Briefing.com consensus: 48.3%), up from 47.9% in December. The dividing line between expansion and contraction is 50.0%, so the January figure suggests manufacturing activity in January pivoted from contraction to growth.
    • The key takeaway from the report is that activity in the manufacturing sector revved up in January, breaking a streak of eleven straight months in a state of contraction, paced by the highest level in the new orders index since February 2022.
  • The S&P Global U.S. Manufacturing PMI hit 52.4 in the final reading for January, up from 51.9 in the flash reading and December's final reading of 51.8.
• Commodities:
  • WTI crude: -4.6% to $62.19/bbl
  • Gold: -2.4% to $4653.90/ozt
  • Copper: -1.7% to $5.82/lb
• Currencies:
  • EUR/USD: -0.5% to 1.1787
  • GBP/USD: -0.2% to 1.3657
  • USD/CNH: -0.2% to 6.9416
  • USD/JPY: +0.6% to 155.66
• The Day Ahead:
  • 10:00 ET: December Job Openings (prior 7.146 mln)

Staying in the Red

• U.S. Treasuries have risen off their morning lows, though the rebound has been shallow, leaving the complex in negative territory. The rebound has returned yields on 10s and 30s to last week's highs while the 2-yr yield is back near its closing level from Thursday after bouncing off its 50-day moving average (3.526%). Recent trade has been largely uneventful, though it is worth noting that Bloomberg reported that the Bureau of Labor Statistics will delay Friday's scheduled release of the Employment Situation report for January due to the government shutdown. Equities are hanging onto their gains with the S&P 500 (+0.7%) trailing the Russell 2000 (+1.4%).
• Yield Check:
  • 2-yr: +3 bps to 3.56%
  • 3-yr: +4 bps to 3.64%
  • 5-yr: +4 bps to 3.83%
  • 10-yr: +3 bps to 4.27%
  • 30-yr: +3 bps to 4.90%

Data Recon

• The ISM Manufacturing Index checked in at 52.6% for January (Briefing.com consensus: 48.3%), up from 47.9% in December. The dividing line between expansion and contraction is 50.0%, so the January figure suggests manufacturing activity in January pivoted from contraction to growth.
  • The key takeaway from the report is that activity in the manufacturing sector revved up in January, breaking a streak of eleven straight months in a state of contraction, paced by the highest level in the new orders index since February 2022.
• Yield Check:
  • 2-yr: +4 bps to 3.57%
  • 3-yr: +5 bps to 3.65%
  • 5-yr: +4 bps to 3.84%
  • 10-yr: +4 bps to 4.28%
  • 30-yr: +3 bps to 4.90%

Opening Gains Evaporate

• U.S. Treasuries have spent the first couple hours of action in a steady slide from their opening highs. The market began facing resistance immediately after the open with a recent thrust to lows in response to a strong ISM Manufacturing Index for January (52.6%; Briefing.com consensus 48.3%), which showed an unexpected expansion in activity, producing the highest reading since August 2022. The early reversal has sent the 5-yr yield back above its 200-day moving average (3.804%) while the 10-yr yield started the day just above the 200-day moving average of its own (4.231%) before pulling away from that level in recent trade. Equities have overcome a lower start with the S&P 500 rising 0.4% while precious metals are back to little changed.
• Yield Check:
  • 2-yr: +3 bps to 3.56%
  • 3-yr: +4 bps to 3.64%
  • 5-yr: +4 bps to 3.83%
  • 10-yr: +3 bps to 4.27%
  • 30-yr: +3 bps to 4.90%

Inching Higher

• U.S. Treasuries are on track for a modestly higher start after last week's gains in the 5-yr note and shorter tenors. Treasury futures marched higher during the Asian session amid weak sentiment surrounding equities, though some of the gains faded in recent trade. The pressure on stocks followed comments from NVIDIA CEO Huang, who said that his company's planned investment in OpenAI will not reach $100 billion, a figure that had been previously reported as commitment. The start of a new month brought the release of January Manufacturing PMI readings with China's official Manufacturing PMI dipping back into contraction (49.3) while the market-oriented private reading (50.3) remained in expansion. Manufacturing PMI readings from Japan (51.5) and South Korea (51.2) showed accelerating expansion while European readings were mostly better than expected, though the eurozone reading (49.5) still pointed to an ongoing contraction. At home, the U.S. government entered a shutdown over the weekend, but it should end after the House votes on the funding bill later today. Crude oil has fallen back below its 200-day moving average (62.32) after the weekend went by without military action against Iran, which had been seen as a possibility. Precious metals are up after a volatile night while the U.S. Dollar Index is up 0.2% at 97.21.
• Yield Check:
  • 2-yr: -1 bp to 3.52%
  • 3-yr: -1 bp to 3.59%
  • 5-yr: -1 bp to 3.79%
  • 10-yr: -1 bp to 4.23%
  • 30-yr: UNCH at 4.87%

• News:
  • Japan Prime Minister Takaichi's LDP and her coalition partner Ishin are projected to win over 300 seats in the Lower House next Sunday, clearing the way for a full implementation of the prime minister's agenda.
  • Official January figures from Japan's Ministry of Finance confirmed that there was no intervention during the yen's three-day rally against the dollar a week ago.
  • The European Central Bank and the Bank of England are expected to hold their policies steady on Thursday, with the market speculating that the BoE's next cut could come in April.
  • Standard & Poor's affirmed Italy's BBB+ rating and raised the outlook Positive from Stable.
  • China's January Manufacturing PMI hit 49.3 (expected 50.1; last 50.1) and Non-Manufacturing PMI hit 49.4 (expected 50.3; last 50.2). January RatingDog Manufacturing PMI hit 50.3 (expected 50.1; last 50.1).
  • Japan's final January Manufacturing PMI hit 51.5, as expected (last 50.0).
  • South Korea's January trade surplus reached $8.74 bln (expected surplus of $4.60 bln; last surplus of $12.17 bln) as imports grew 11.7% yr/yr (expected 14.6%; last 4.6%) and exports rose 33.9% (expected 29.9%; last 13.3%). January Manufacturing PMI hit 51.2 (last 50.1).
  • Singapore's Q4 Business Expectations rose to 11.00 from 8.00.
  • India's final January Manufacturing PMI hit 55.4 (expected 56.8; last 55.0).
  • Australia's final January Manufacturing PMI hit 52.3 (expected 52.4; last 51.6). January ANZ Job Advertisements rose 4.4% m/m (last -0.8%), January Inflation Gauge was up 0.2% m/m (last 1.0%), and January Commodity Prices rose 2.6% yr/yr (last -3.2%).
  • Eurozone's final January Manufacturing PMI hit 49.5 (expected 49.4; last 48.8).
  • Germany's December Retail Sales were up 0.1% m/m (expected -0.1%; last -0.5%), rising 1.5% yr/yr (last -1.6%). Final January Manufacturing PMI hit 49.1 (expected 48.7; last 47.0).
  • U.K.'s January Nationwide HPI was up 0.3% m/m, as expected (last -0.4%), rising 1.0% yr/yr (expected 0.7%; last 0.6%). January Manufacturing PMI hit 51.8 (expected 51.6; last 50.6).
  • France's final January Manufacturing PMI hit 51.2 (expected 51.0; last 50.7).
  • Italy's January Manufacturing PMI hit 48.1 (expected 48.5; last 47.9).
  • Spain's January Manufacturing PMI hit 49.2 (expected 49.9; last 49.6).
  • Swiss December Retail Sales rose 2.9% yr/yr (expected 2.5%; last 1.7%). January Manufacturing PMI hit 48.8 (expected 47.2; last 45.8).
• Commodities:
  • WTI Crude: -4.5% to $62.26/bbl
  • Gold: +1.3% to $4804.80/ozt
  • Copper: -1.0% to $5.867/lb
• Currencies:
  • EUR/USD: UNCH at 1.1848
  • GBP/USD: +0.1% to 1.3689
  • USD/CNH: -0.2% to 6.9421
  • USD/JPY: +0.1% to 154.94
• Data out Today:
  • 9:45 ET: Final January S&P Global U.S. Manufacturing PMI (prior 51.9)
  • 10:00 ET: January ISM Manufacturing Index (Briefing.com consensus 48.3%; prior 47.9%)