Bond Market Update

Lower Start to Christmas Week

• U.S. Treasuries began the Christmas week on a modestly lower note with shorter tenors leading a quiet Monday dip. Treasuries slipped out of the gate after some overnight pressure on sovereign debt drove JGB yields to fresh highs for the year. The overnight pressure on sovereign debt coincided with some renewed strength in global equity markets thanks to a bounce in growth stocks that have faced recent pressure. Treasuries attempted to string together an early bounce, but they found resistance after the long bond approached its closing level from Friday during the opening hour. The rest of the session saw a slow return to the day's worst levels with the market setting fresh lows after today's $69 bln 2-yr note auction met weak demand. Crude oil climbed toward its 50-day moving average (59.02) while the U.S. Dollar Index fell 0.3% to 98.32.
• Yield Check:
  • 2-yr: +2 bps to 3.51%
  • 3-yr: +3 bps to 3.56%
  • 5-yr: +3 bps to 3.72%
  • 10-yr: +2 bps to 4.17%
  • 30-yr: +1 bp to 4.84%

• News:
  • CNBC reported that President Trump could reveal his Fed Chairman nominee during the first week of January.
  • The People's Bank of China made no changes to its one-year (3.00%) and five-year (3.50%) loan prime rates.
  • South Korea's exports through the first 20 days of December were up 6.8% yr/yr with chip exports jumping 41.8%.
  • A survey from Germany's ifo Institute showed that just over a quarter of German companies expect further deterioration of business in 2026.
  • European Central Bank policymaker Simkus said that growth has improved, but is still sluggish, and that inflation should stay near the 2.0% target in the medium term.
  • Hong Kong's November CPI was unchanged m/m (last 0.3%), rising 1.2% yr/yr (last 1.2%).
  • India's November Infrastructure Output was up 1.8% yr/yr (last 0.0%).
  • U.K.'s Q3 GDP expanded 0.1% qtr/qtr, as expected (last 0.3%), growing 1.3% yr/yr, as expected (last 1.4%). Q3 Business Investment was up 1.5% qtr/qtr (expected -0.3%; last -1.7%), rising 2.7% yr/yr (expected 0.7%; last 3.2%). Q3 Current Account deficit reached GBP12.1 bln (expected deficit of GBP19.1 bln; last deficit of GBP21.2 bln).
  • Italy's November PPI was up 1.0% m/m (last -0.2%) but down 0.2% yr/yr (last 0.1%).
• Today's Data:
  • $69 bln 2-year Treasury note auction results (prior 12-auction average):
    • High yield: 3.499% (3.863%).
    • Bid-to-cover: 2.54 (2.61).
    • Indirect bid: 53.2% (64.2%).
    • Direct bid: 34.1% (24.6%).
• Commodities:
  • WTI crude: +2.7% to $58.03/bbl
  • Gold: +1.9% to $4469.30/ozt
  • Copper: UNCH at $5.51/lb
• Currencies:
  • EUR/USD: +0.4% to 1.1753
  • GBP/USD: +0.6% to 1.3457
  • USD/CNH: UNCH at 7.0317
  • USD/JPY: -0.5% to 156.97
• The Day Ahead:
  • 8:30 ET: Advance Q3 GDP (Briefing.com consensus 3.0%; prior 3.8%), advance Q3 GDP Deflator (Briefing.com consensus 2.7%; prior 2.1%), October Durable Orders (Briefing.com consensus 0.3%; prior 0.5%), and Durable Orders ex-transport (Briefing.com consensus -1.1%; prior 0.6%)
  • 9:15 ET: November Industrial Production (Briefing.com consensus 0.1%; prior NA) and Capacity Utilization (Briefing.com consensus 77.4%; prior NA)
  • 10:00 ET: December Consumer Confidence (Briefing.com consensus 89.0; prior 88.7) and November New Home Sales (prior NA)
• Treasury Auctions:
  • 13:00 ET: $70 bln 5-yr Treasury note auction results

Auction Reaction

• U.S. Treasuries trade on their lows, making for a continuation of their sideways drift that has pushed the 30-yr yield to within three basis points of its December high while yields on shorter tenors remain notably lower relative to this month's highs. The 2-yr yield, for instance, is still 12 basis points below its peak that was reached on December 10. That said, the 2-yr yield has risen to a fresh high after the U.S. Treasury sold $69 bln in 2-yr notes to soft demand. The auction drew a high yield of 3.499%, which tailed the when-issued yield by 0.3 basis points while the bid-to-cover ratio (2.54x vs 2.61x average) and indirect takedown (53.2% vs 64.2% average) were below average. The U.S. Treasury will sell $70 bln in 5-yr notes tomorrow.
• Yield Check:
  • 2-yr: +2 bps to 3.51%
  • 3-yr: +3 bps to 3.56%
  • 5-yr: +3 bps to 3.72%
  • 10-yr: +2 bps to 4.17%
  • 30-yr: +2 bps to 4.84%

Treasury Auction Results

• $69 bln 2-year Treasury note auction:
  • Auction results:
    • High yield: 3.499% (When-Issued: 3.496%)
    • Bid-to-cover: 2.54
    • Indirect bid: 53.2%
    • Direct bid: 34.1%
  • Average results of previous 12 auctions:
    • High yield: 3.863%
    • Bid-to-cover: 2.61
    • Indirect bid: 64.2%
    • Direct bid: 24.6%

Treasury Auction Preview

• $69 bln 2-year Treasury note auction (results at 13:00 ET):
  • Prior auction results:
    • High yield: 3.489%
    • Bid-to-cover: 2.68
    • Indirect bid: 58.1%
    • Direct bid: 30.7%
  • Average results of previous 12 auctions:
    • High yield: 3.863%
    • Bid-to-cover: 2.61
    • Indirect bid: 64.2%
    • Direct bid: 24.6%

Staying in the Red

• U.S. Treasuries trade on their lows after seeing a continuation of the early pressure. Treasuries followed their lower start with a brief bounce attempt during the opening 30 minutes, but the complex found resistance once the long bond approached its closing level from Friday. The past 90 minutes have featured a return to the early low in the long bond while shorter tenors have dipped past their opening lows. Equities are off to a higher start with the S&P 500 rising 0.5%.
• Yield Check:
  • 2-yr: +1 bp to 3.50%
  • 3-yr: +2 bps to 3.55%
  • 5-yr: +2 bps to 3.71%
  • 10-yr: +2 bps to 4.17%
  • 30-yr: +1 bp to 4.84%