Bond Market Update

Treasuries Dip While Geopolitical Spotlight Persists

• U.S. Treasuries had a modestly lower showing on Friday, giving back a chunk of their midweek gains. The trading day started in flat fashion after a quiet night in terms of new geopolitical developments, as the market maintained a measure of optimism ahead of this weekend's U.S.-Iran negotiations in Pakistan led by Vice President Vance. Treasuries briefly extended to fresh session highs in immediate reaction to the March CPI report, which was cooler than expected at the Core level (0.2%; Briefing.com consensus 0.3%) while the headline reading (0.9%; Briefing.com consensus 0.7%) was hotter than expected. The brief push to fresh highs gave way to a reversal that found support once yields on most tenors returned to their intraday highs from Thursday while relative weakness in the 2-yr note lifted its yield back to levels from Tuesday. Today's retreat left the Treasury complex with only a portion of its midweek gains and no change in the 2s10s spread, which remained at 52 bps. Crude oil ended a volatile week with a loss of nearly $15/bbl while the U.S. Dollar Index fell 0.2% to 98.66, losing 1.5% for the week.
• Yield Check:
  • 2-yr: +2 bps to 3.80% (-3 bps this week)
  • 3-yr: +1 bp to 3.82% (-4 bps this week)
  • 5-yr: +2 bps to 3.94% (-5 bps this week)
  • 10-yr: +2 bps to 4.32% (-3 bps this week)
  • 30-yr: +2 bps to 4.91% (-1 bp this week)

• News:
  • The Senate Banking Committee will delay Kevin Warsh's confirmation hearing that was scheduled for next week.
  • The Bank of Korea left its policy rate at 2.50%, as expected, warning about the risk of higher prices and lower growth resulting from the U.S.-Iran conflict.
  • Germany's economy minister voiced opposition to taxing surplus profits of energy companies but also spoke in favor of measures to offset the impact of high energy prices for consumers.
  • Hungary will hold a parliamentary election on Sunday with polls pointing to a tight race.
  • China's March CPI was down 0.7% m/m (expected -0.2%; last 1.0%) but up 1.0% yr/yr (expected 1.2%; last 1.3%). March PPI was up 0.5% m/m (expected 0.4%; last -0.9%).
  • Japan's March PPI was up 0.8% m/m (expected 0.9%; last 0.1%), rising 2.6% yr/yr (expected 2.4%; last 2.1%). March Bank Lending increased by 4.8% yr/yr (expected 4.4%; last 4.5%).
  • Australia's February Building Approvals rose 29.7% m/m, as expected (last -7.2%), increasing 14.0% yr/yr, as expected (last 15.7%). February Private House Approvals ticked up 0.2% m/m, as expected (last 1.1%).
  • New Zealand's March Business PMI hit 53.2 (last 54.8).
  • Germany's March CPI was up 1.1% m/m, as expected (last 0.2%), rising 2.7% yr/yr, as expected (last 1.9%).
  • Italy's February Industrial Production was up 0.1% m/m (expected 0.5%; last -0.6%), rising 0.5% yr/yr, as expected (last -0.6%).
  • Swiss March SECO Consumer Climate fell to -43 from -30 (expected -32).
• Today's Data:
  • Total CPI was up 0.9% month-over-month in March (Briefing.com consensus: 0.7%) following a 0.3% increase in February. Core CPI, which excludes food and energy, was up 0.2% month-over-month (Briefing.com consensus: 0.3%) following a 0.2% increase in February. With these changes, total CPI was up 3.3% year-over-year, versus 2.4% in February, and core CPI was up 2.6% year-over-year, versus 2.5% in February.
    • The key takeaway from the report is that headline inflation was driven by the index for energy, which rose 10.9% in March, and although core inflation was seemingly subdued in March, the concern is that the energy price shock will bleed through more to core inflation in April.
  • The preliminary reading for the University of Michigan Consumer Sentiment Index for April fell to 47.6 (Briefing.com consensus: 52.0) from the final reading of 53.3 for March. In the same period a year ago, the index stood at 52.2.
    • The key takeaway from the report is that the fallout from the Iran conflict was the driver of the big drop in sentiment and big rise in year-ahead inflation expectations in April (note: nearly all responses to the survey were captured before the two-week ceasefire agreement announced on April 7).
  • Factory orders were flat month-over-month in February (Briefing.com consensus: 0.5%) following a downwardly revised unchanged reading (from 0.1%) in January. Excluding transportation, factory orders increased 1.2% after increasing 0.5% in January. Shipments of manufactured goods surged 1.4% after increasing 0.7% in January.
    • The key takeaway from the report is that factory orders weren't as flat as the headline suggests. On the contrary, they were quite strong when the volatile transportation component was excluded.
  • The Treasury Department reported a $164.1 billion deficit for March (Briefing.com consensus -$160.0 bln), which was a bit wider than the $160.5 billion deficit reported for March 2025. Receipts totaled $385.0 billion, while outlays reached $549.0 billion.
    • The key takeaway from the report is that net interest costs hit nearly $100 billion in March, trailing only Social Security payments as the government's largest outlay.
• Commodities:
  • WTI crude: -1.4% to $96.55/bbl
  • Gold: -0.6% to $4787.30/ozt
  • Copper: +2.1% to $5.88/lb
• Currencies:
  • EUR/USD: +0.3% to 1.1730
  • GBP/USD: +0.3% to 1.3468
  • USD/CNH: -0.1% to 6.8247
  • USD/JPY: +0.2% to 159.29
• The Day Ahead:
  • Monday: March Existing Home Sales (Briefing.com consensus 4.01 mln; prior 4.09 mln) at 10:00 ET
  • Tuesday: March NFIB Small Business Optimism (Briefing.com consensus 98.0; prior 98.8) at 6:00 ET; March PPI (Briefing.com consensus 1.2%; prior 0.7%) and Core PPI (Briefing.com consensus 0.4%; prior 0.5%) at 8:30 ET
  • Wednesday: Weekly MBA Mortgage Index (prior -0.8%) at 7:00 ET; April Empire State Manufacturing (Briefing.com consensus 0.0; prior -0.2), March Import Prices (prior 1.3%), Import Prices ex-oil (prior 1.1%), Export Prices (prior 1.5%), and Export Prices ex-ag (prior 1.7%) at 8:30 ET; April NAHB Housing Market Index (Briefing.com consensus 38; prior 38) at 10:00 ET; weekly crude oil inventories (prior +3.08 mln) at 10:30 ET; April Beige Book at 14:00 ET; February Net Long-Term TIC Flows (prior $15.5 bln) at 16:00 ET
  • Thursday: April Philadelphia Fed survey (Briefing.com consensus 12.7; prior 18.1), weekly Initial Claims (Briefing.com consensus 215,000; prior 219,000), and Continuing Claims (prior 1.794 mln) at 8:30 ET; March Industrial Production (Briefing.com consensus 0.1%; prior 0.2%) and Capacity Utilization (Briefing.com consensus 76.4%; prior 76.3%) at 9:15 ET; and weekly natural gas inventories (prior +50 bcf) at 10:30 ET
  • Friday: Nothing of note

Data Recon

• The Treasury Department reported a $164.1 billion deficit for March (Briefing.com consensus -$160.0 bln), which was a bit wider than the $160.5 billion deficit reported for March 2025. Receipts totaled $385.0 billion, while outlays reached $549.0 billion.
  • The key takeaway from the report is that net interest costs hit nearly $100 billion in March, trailing only Social Security payments as the government's largest outlay.
• Yield Check:
  • 2-yr: +2 bps to 3.80%
  • 3-yr: +1 bp to 3.82%
  • 5-yr: +2 bps to 3.94%
  • 10-yr: +2 bps to 4.32%
  • 30-yr: +2 bps to 4.91%

Pullback Deepens

• U.S. Treasuries have deepened their pullback from morning highs, lifting yields on most tenors back to their highs from yesterday while relative weakness in the 2-yr note has the 2-yr yield back at levels from Tuesday afternoon. The recent selling has taken place alongside a shaky showing from equities, as the S&P 500 (-0.2%) turns negative after giving back its opening gain. Still, the benchmark index remains on course to add 3.5% for the week, thanks to reduced fears about the potential for a broader U.S.-Iran conflict. Treasuries, however, are on course for a slightly lower finish to the week in 2s and 30s and a flat finish in the belly. The 2-yr yield is up one basis point from last Friday's settlement while the 30-yr yield is up three basis points for the week.
• Yield Check:
  • 2-yr: +3 bps to 3.81%
  • 3-yr: +2 bps to 3.83%
  • 5-yr: +3 bps to 3.95%
  • 10-yr: +3 bps to 4.32%
  • 30-yr: +2 bps to 4.92%

Data Recon

• The preliminary reading for the University of Michigan Consumer Sentiment Index for April fell to 47.6 (Briefing.com consensus: 52.0) from the final reading of 53.3 for March. In the same period a year ago, the index stood at 52.2.
  • The key takeaway from the report is that the fallout from the Iran conflict was the driver of the big drop in sentiment and big rise in year-ahead inflation expectations in April (note: nearly all responses to the survey were captured before the two-week ceasefire agreement announced on April 7).
• Factory orders were flat month-over-month in February (Briefing.com consensus: 0.5%) following a downwardly revised unchanged reading (from 0.1%) in January. Excluding transportation, factory orders increased 1.2% after increasing 0.5% in January. Shipments of manufactured goods surged 1.4% after increasing 0.7% in January.
  • The key takeaway from the report is that factory orders weren't as flat as the headline suggests. On the contrary, they were quite strong when the volatile transportation component was excluded.
• Yield Check:
  • 2-yr: +1 bp to 3.79%
  • 3-yr: UNCH at 3.81%
  • 5-yr: +1 bp to 3.93%
  • 10-yr: +1 bp to 4.31%
  • 30-yr: +2 bps to 4.91%

Opening Gains Reversed

• U.S. Treasuries trade on their lows after a steady slide from their opening levels. Treasuries opened the day with slim gains, hitting fresh highs in immediate reaction to the March CPI report, which showed a hotter-than-expected headline reading (0.9%; Briefing.com consensus 0.7%) while Core CPI (0.2%; Briefing.com consensus 0.2%) was a touch cooler than expected. However, Treasuries quickly turned down from their highs, turning negative. The market has held on lows in reaction to the latest batch of data, which included disappointing Factory Orders for February (0.0%; Briefing.com consensus 0.5%) and a weak preliminary reading of the University of Michigan's Consumer Sentiment Index for April (47.6; Briefing.com consensus 52.0).
• Yield Check:
  • 2-yr: +1 bp to 3.79%
  • 3-yr: UNCH at 3.81%
  • 5-yr: +1 bp to 3.93%
  • 10-yr: +1 bp to 4.31%
  • 30-yr: +2 bps to 4.91%