Bond Market Update

Improved Sentiment Offers Monday Boost

• U.S. Treasuries began the week with gains across the curve, pressuring yields from Q1 highs, amid some improvement in geopolitical sentiment. Capital markets were on track for an early extension of Friday's dynamic that saw heavy selling in stocks and bonds after President Trump gave Iran 48 hours to fully open the Strait of Hormuz or face attacks on its energy infrastructure. However, concerns about a potential broadening of the conflict receded significantly when President Trump said early this morning that strikes on Iranian targets will be paused for five days to allow for negotiations. The news sparked an immediate improvement in sentiment, boosting equity and Treasury futures while oil plunged $10/bbl. Treasuries built on their starting gains in morning trade before some late morning selling briefly drove the 30-yr bond below its opening level. However, the market showed resilience with a late push that returned all tenors to mid-morning levels, leaving them with the bulk of today's gains. Crude oil fell below $90/bbl, nearing a two-week low, while the U.S. Dollar Index fell 0.7% to 98.95.
• Yield Check:
  • 2-yr: -6 bps to 3.83%
  • 3-yr: -7 bps to 3.84%
  • 5-yr: -6 bps to 3.95%
  • 10-yr: -6 bps to 4.33%
  • 30-yr: -5 bps to 4.91%

• News:
  • Municipal elections in France produced some gains for National Rally.
  • Germany has maintained its debt issuance plans for Q2.
  • European Central Bank policymaker Kazimir said that rates remain in good place while policymaker De Guindos said that the central bank will react if necessary.
  • Singapore's February CPI was up 0.6% m/m (last -0.5%), rising 1.2% yr/yr (last 1.4%). February Core CPI was up 1.4% yr/yr (last 1.0%).
  • Taiwan's February exports to the U.S. were up 24% yr/yr while exports to Japan grew 18% yr/yr.
  • Japan will spend about JPY800 bln to offset high gasoline prices.
  • South Korea's President Lee nominated Shin Hyun-song to be the next governor of the Bank of Korea.
  • Spain's January trade deficit reached EUR4.00 bln (last deficit of EUR5.57 bln).
• Today's Data:
  • Construction spending decreased 0.3% month-over-month in January (Briefing.com consensus: 0.1%) following an upwardly revised 0.8% increase (from 0.3%) in December. On a year-over-year basis, construction spending was up 1.0%.
    • The key takeaway from the report is that the weakness was paced by a decline in private residential spending, which is believed to be a knock-on effect of labor constraints and higher interest rates.
• Commodities:
  • WTI crude: -10.1% to $88.19/bbl
  • Gold: -3.7% to $4407.20/ozt
  • Copper: +1.9% to $5.47/lb
• Currencies:
  • EUR/USD: +0.5% to 1.1628
  • GBP/USD: +0.8% to 1.3449
  • USD/CNH: -0.3% to 6.8819
  • USD/JPY: -0.7% to 158.17
• The Day Ahead:
  • 8:30 ET: Revised Q4 Productivity (prior 2.8%) and revised Q4 Unit Labor Costs (prior 2.8%)
  • 9:45 ET: Flash March S&P Global U.S. Manufacturing PMI (prior 50.2) and flash March S&P Global U.S. Services PMI (prior 50.4)
• Treasury Auctions:
  • 13:00 ET: $69 bln 2-yr Treasury note auction results

Early Gains Narrowed

• U.S. Treasuries are back near their starting levels after a steady retreat from session highs that were set in mid-morning action. Treasuries spent the first three hours of action in a steady rise before reversing near their opening levels from Friday. The intraday volatility in Treasuries has not stopped equities from hanging onto their gains with the S&P 500 (+1.2%) narrowing its March loss to 4.3%. The market remains on guard for potential headline developments, but this morning's comments from President Trump boosted hopes for deescalation in Iran.
• Yield Check:
  • 2-yr: -2 bps to 3.87%
  • 3-yr: -2 bps to 3.89%
  • 5-yr: -3 bps to 3.99%
  • 10-yr: -2 bps to 4.37%
  • 30-yr: -2 bps to 4.94%

Data Recon

• Construction spending decreased 0.3% month-over-month in January (Briefing.com consensus: 0.1%) following an upwardly revised 0.8% increase (from 0.3%) in December. On a year-over-year basis, construction spending was up 1.0%.
  • The key takeaway from the report is that the weakness was paced by a decline in private residential spending, which is believed to be a knock-on effect of labor constraints and higher interest rates.
• Yield Check:
  • 2-yr: -5 bps to 3.84%
  • 3-yr: -5 bps to 3.86%
  • 5-yr: -4 bps to 3.97%
  • 10-yr: -4 bps to 4.35%
  • 30-yr: -4 bps to 4.92%

Opening Gains Padded

• U.S. Treasuries trade on their highs after adding to their starting gains. Treasuries opened in positive territory thanks to a sharp rally in the futures market that followed President Trump's comments, which made it seem that deescalation with Iran is possible. Shorter tenors trade a bit ahead while equities have started the day on a strong note with the S&P 500 rising 1.9% in the early going. The market received the Construction Spending report for January (-0.3%; Briefing.com consensus 0.1%) not long ago, missing expectations.
• Yield Check:
  • 2-yr: -5 bps to 3.84%
  • 3-yr: -5 bps to 3.86%
  • 5-yr: -4 bps to 3.97%
  • 10-yr: -4 bps to 4.35%
  • 30-yr: -4 bps to 4.92%

Bumpy Start Ahead

• U.S. Treasuries are on track for a mixed start after a night that saw selling in global equity markets amid ongoing Iran-related uncertainty. Treasury futures retreated during the Asian session, falling alongside equity markets amid building concerns about the ongoing conflict with Iran. President Trump gave Iran 48 hours to fully open the Strait of Hormuz or face attacks on its energy infrastructure over the weekend. However, the president said this morning that discussions with Iran are being held, which gave the market a glimmer of hope that a resolution to the conflict may be near. That acknowledgement drove a sharp bounce in Treasury futures while equity futures also rallied, recovering their big overnight losses. The focus on the conflict with Iran dominated the overnight session while the data flow was on the light side. Crude oil is down more than $7/bbl, falling toward $90/bbl after President Trump's acknowledgement that talks are being held. The U.S. Dollar Index is down 0.3% at 99.34.
• Yield Check:
  • 2-yr: +2 bps to 3.91%
  • 3-yr: +1 bp to 3.92%
  • 5-yr: UNCH at 4.01%
  • 10-yr: -1 bp to 4.38%
  • 30-yr: -3 bps to 4.93%

• News:
  • Singapore's February CPI was up 0.6% m/m (last -0.5%), rising 1.2% yr/yr (last 1.4%). February Core CPI was up 1.4% yr/yr (last 1.0%).
  • Taiwan's February exports to the U.S. were up 24% yr/yr while exports to Japan grew 18% yr/yr.
  • Japan will spend about JPY800 bln to offset high gasoline prices.
  • South Korea's President Lee nominated Shin Hyun-song to be the next governor of the Bank of Korea.
  • Spain's January trade deficit reached EUR4.00 bln (last deficit of EUR5.57 bln).
  • Municipal elections in France produced some gains for National Rally.
  • Germany has maintained its debt issuance plans for Q2.
  • European Central Bank policymaker Kazimir said that rates remain in good place while policymaker De Guindos said that the central bank will react if necessary.
• Commodities:
  • WTI Crude: -7.0% to $91.31/bbl
  • Gold: -3.5% to $4413.50/ozt
  • Copper: +2.1% to $5.483/lb
• Currencies:
  • EUR/USD: +0.1% to 1.1575
  • GBP/USD: +0.3% to 1.3376
  • USD/CNH: -0.1% to 6.8956
  • USD/JPY: -0.3% to 158.79
• Data out Today: 
  • 10:00 ET: January Construction Spending (Briefing.com consensus 0.1%; prior 0.3%)