Bond Market Update

Quiet Finish to Christmas Week

• U.S. Treasuries finished the Christmas-shortened week on a mixed note, but the Friday session was uneventful, to no one's surprise. The trading day started with slim gains after a night that lacked the participation of some markets in Asia and all major European bourses. Treasuries added to their starting gains in early action but ran into resistance once the 30-yr yield dipped below its 200-day moving average (4.788%) while the 5-yr yield approached its 50-day moving average (3.674%). Treasuries remained just below their highs through early morning trade but slipped below their starting levels shortly before noon. However, the dip did not invite additional selling, as the complex nestled into a sideways range again, hovering near session lows into the close. The equity session was also a sleepy one, but precious metals had a big day with gold and silver soaring to fresh records. Silver jumped nearly $6/ozt past $77/ozt, extending this week's gain to about $10/ozt, while palladium also enjoyed a big rally, soaring $225/ozt past $2000/ozt to its best close in more than three years. Crude oil gave back some of this week's gain while the U.S. Dollar Index rose 0.1% to 98.05, narrowing this week's loss to 0.7%.
• Yield Check:
  • 2-yr: -3 bps to 3.48% (-1 bp this week)
  • 3-yr: -3 bps to 3.53% (UNCH this week)
  • 5-yr: -2 bps to 3.70% (+1 bp this week)
  • 10-yr: UNCH at 4.14% (-1 bp this week)
  • 30-yr: +2 bps to 4.82% (-1 bp this week)

• News:
  • Japan's cabinet confirmed a record FY26 budget of JPY122.3 trln.
  • State-owned banks in China are reportedly actively purchasing dollars in the spot market.
  • Ukraine's President Zelensky is expected to visit Florida in the coming days to discuss the proposed peace plan.
  • Japan's November Housing Starts were down 8.5% yr/yr (expected 0.2%; last 3.2%) and Construction Orders rose 9.5% yr/yr (last -10.1%). November Industrial Production fell 2.6% m/m (expected -1.9%; last 1.5%) and November Retail Sales rose 1.0% yr/yr (expected 0.9%; last 1.7%). November Unemployment Rate remained at 2.6%, as expected. December Tokyo CPI was up 2.0% yr/yr (last 2.7%) and Tokyo Core CPI was up 2.3% yr/yr (expected 2.5%; last 2.8%).
  • Singapore's November Industrial Production fell 10.2% m/m (last 11.2%) but was up 14.3% yr/yr (expected 14.2%; last 28.9%).
• Commodities:
  • WTI crude: -3.0% to $56.68/bbl
  • Gold: +1.0% to $4551.30/ozt
  • Copper: +5.0% to $5.85/lb
• Currencies:
  • EUR/USD: UNCH at 1.1779
  • GBP/USD: -0.1% to 1.3505
  • USD/CNH: +0.1% to 7.0035
  • USD/JPY: +0.4% to 156.45
• The Week Ahead:
  • Monday: November Pending Home Sales (Briefing.com consensus 0.9%; prior 1.9%) at 10:00 ET; weekly crude oil inventories (prior -1.27 mln) at 10:30 ET; and weekly natural gas inventories (prior -167 bcf) at 12:00 ET
  • Tuesday: October FHFA Housing Price Index (Briefing.com consensus 0.1%; prior 0.0%) and October S&P Case-Shiller Home Price Index (Briefing.com consensus 1.1%; prior 1.4%) at 9:00 ET; December Chicago PMI (Briefing.com consensus 40.4; prior 36.3) at 9:45 ET; December Consumer Confidence (prior 88.7) and October Job Openings (prior 7.227 mln) at 10:00 ET
  • Wednesday: Weekly MBA Mortgage Index (prior -5.0%) at 7:00 ET; weekly crude oil inventories (prior NA) at 10:30 ET; and weekly natural gas inventories (prior NA) at 12:00 ET
  • Thursday: Weekly Initial Claims (Briefing.com consensus 226,000; prior 214,000) and Continuing Claims (prior 1.923 mln) at 8:30 ET
  • Friday: Final December S&P Global U.S. Manufacturing PMI (prior 51.8) at 9:45 ET and November Construction Spending (Briefing.com consensus -0.1%; prior NA) at 10:00 ET

Early Rally Finds Resistance

• Recent action saw a dip from highs that has sent 10s and 30s into the red while shorter tenors remain in positive territory, though they too have backtracked in recent trade. The opening rally pressured the 5-yr yield to within a striking distance of its 50-day moving average (3.674%) while the 30-yr yield briefly dipped below its 200-day moving average (4.788%), but the yields have risen back above those levels during the recent dip from highs. Even with the modest volatility, the overall tone has remained subdued, with today's biggest moves reserved for the precious metals market where gold and silver have soared to fresh record highs with silver jumping more than $4.50/ozt, or 6.4%. Palladium futures have also shown notable strength, soaring nearly $200/ozt, or 10.9%, back to $2000/ozt.
• Yield Check:
  • 2-yr: -2 bps to 3.48%
  • 3-yr: -2 bps to 3.54%
  • 5-yr: -1 bp to 3.70%
  • 10-yr: UNCH at 4.14%
  • 30-yr: +2 bps to 4.82%

Opening Gains Maintained

• U.S. Treasuries are hanging onto modest early gains after spending the first couple hours of action in a sideways range. The final session of the Christmas-shortened week was expected to be quiet and it has lived up to that billing so far. Treasuries notched fresh highs shortly after the cash open before dipping back to levels seen at the start of the cash session. Like Treasuries, stocks have started the day on a quiet note with the S&P 500 sitting just above its flat line while small caps lag, resulting in relative weakness in the Russell 2000 (-0.5%).
• Yield Check:
  • 2-yr: -3 bps to 3.48%
  • 3-yr: -3 bps to 3.53%
  • 5-yr: -3 bps to 3.69%
  • 10-yr: -2 bps to 4.12%
  • 30-yr: -1 bp to 4.79%

Inching Higher After Christmas Break

• U.S. Treasuries are on track for a quiet start to the post-Christmas session with shorter tenors expected to show some relative strength in the early going. Treasury futures faced some pressure during the Asian session that lacked the participation of markets in Australia, New Zealand, and Hong Kong, but the slim losses were wiped out shortly after the focus turned to Europe, where all major markets are closed. The early selling in Treasury futures took place alongside weakness in JGBs with Japan's 2-yr yield hitting its highest level since 1996 even though Tokyo Core CPI decelerated to 2.3% yr/yr in December from 2.8% in November. The market did not receive any data from Europe, and the U.S. economic calendar is also empty today. Crude oil hovers near $58.50/bbl while the U.S. Dollar Index is up 0.1% at 98.04.
• Yield Check:
  • 2-yr: -1 bp to 3.50%
  • 3-yr: -1 bp to 3.55%
  • 5-yr: -1 bp to 3.71%
  • 10-yr: -1 bp to 4.13%
  • 30-yr: UNCH at 4.80%

• News:
  • Japan's cabinet confirmed a record FY26 budget of JPY122.3 trln.
  • State-owned banks in China are reportedly actively purchasing dollars in the spot market.
  • Ukraine's President Zelensky is expected to visit Florida in the coming days to discuss the proposed peace plan.
  • Japan's November Housing Starts were down 8.5% yr/yr (expected 0.2%; last 3.2%) and Construction Orders rose 9.5% yr/yr (last -10.1%). November Industrial Production fell 2.6% m/m (expected -1.9%; last 1.5%) and November Retail Sales rose 1.0% yr/yr (expected 0.9%; last 1.7%). November Unemployment Rate remained at 2.6%, as expected. December Tokyo CPI was up 2.0% yr/yr (last 2.7%) and Tokyo Core CPI was up 2.3% yr/yr (expected 2.5%; last 2.8%).
  • Singapore's November Industrial Production fell 10.2% m/m (last 11.2%) but was up 14.3% yr/yr (expected 14.2%; last 28.9%).
• Commodities:
  • WTI Crude: +0.1% to $58.41/bbl
  • Gold: +0.9% to $4542.60/ozt
  • Copper: +2.9% to $5.736/lb
• Currencies:
  • EUR/USD: UNCH at 1.1777
  • GBP/USD: -0.2% to 1.3494
  • USD/CNH: +0.1% to 7.0043
  • USD/JPY: +0.4% to 156.45
• No Data on Today's Schedule

Longer Tenors Pace Christmas Eve Climb

• U.S. Treasuries had an upbeat showing during Wednesday's abbreviated session with longer tenors reaching fresh highs for the week while the short end lagged in early trade, but eventually finished higher. Longer tenors outperformed from the start after a subdued night that featured some holiday closures. The Japanese government confirmed that it plans to borrow a record JPY29.6 trln in fiscal 2026, which briefly lifted Japan's 30-yr yield to 3.40%, a fresh high for the year. Longer tenors climbed in morning trade even though the latest weekly jobless claims report showed an unexpected drop in Initial Claims (to 214,000 from 224,000; Briefing.com consensus 226,000). The advance continued as the morning went on with the complex reaching highs after the U.S. Treasury capped this week's underwhelming note offering slate with a solid $44 bln 7-yr note sale. Today's advance left the 30-yr yield just above its 200-day moving average (4.787%) while the 2-yr yield remained below its 50-day moving average (3.533%) thanks to the intraday rally. Bond and equity markets will be closed for Christmas Day tomorrow, but they be open for a full session on Friday. Crude oil ended the day flat near $58.50/bbl while the U.S. Dollar Index spent the day near its flat line at 97.94.
• Yield Check:
  • 2-yr: -2 bps to 3.51%
  • 3-yr: -2 bps to 3.56%
  • 5-yr: -2 bps to 3.72%
  • 10-yr: -3 bps to 4.14%
  • 30-yr: -3 bps to 4.80%

• News:
  • Rate hike expectations for the Bank of Japan have receded with the likelihood of a hike by June sitting around 57%.
  • BlackRock may abandon the Panama ports deal due to China's demand for a majority stake for its main shipping company.
  • The French parliament passed a bill to keep the government running until an agreement is made on a budget for 2026 with the original deadline just a week away.
  • Japan's November Corporate Services Price Index was up 2.7% yr/yr, as expected (last 2.7%). November Leading Index rose to 109.8 from 108.6 (expected 11.0).
  • South Korea's December Consumer Confidence fell to 109.9 from 112.4.
• Today's Data:
  • Initial jobless claims for the week ending December 20 decreased by 10,000 to 214,000 (Briefing.com consensus: 226,000), while continuing jobless claims for the week ending December 13 increased by 38,000 to 1.923 million.
    • The key takeaway from the report is the redundancy of the messaging that low initial claims and high continuing claims connote a low firing-low hiring environment that is a speedbump for growth prospects.
  • The weekly MBA Mortgage Index fell 5.0% to follow last week's 3.8% decrease. The Purchase Index fell 3.7% while the Refinance Index was down 5.6%.
  • $44 bln 7-year Treasury note auction results (prior 12-auction average):
    • High yield: 3.930% (4.108%).
    • Bid-to-cover: 2.51 (2.58).
    • Indirect bid: 59.0% (66.8%).
    • Direct bid: 31.6% (22.8%).
• Commodities:
  • WTI crude: UNCH at $58.40/bbl
  • Gold: UNCH at $4505.40/ozt
  • Copper: +0.4% to $5.57/lb
• Currencies:
  • EUR/USD: -0.1% to 1.1779
  • GBP/USD: -0.1% to 1.3500
  • USD/CNH: -0.1% to 7.0080
  • USD/JPY: -0.2% to 155.95
• The Day Ahead:
  • Bond and equity markets closed for Christmas Day