Bond Market Update

2-Yr Yield Ends at Multi-Year Low

• U.S. Treasuries enjoyed a strong finish to the week, sending yields on the 5-yr note and longer tenors to their lowest closing levels since early December while the 2-yr yield settled at its lowest level since September 2022, though it remained above its 2025 intraday low that was notched on October 17 (3.378%). The trading day started with some relative strength up front, but the entire complex rallied once the market received a good CPI report for January, which showed a cooler-than-expected increase at the headline level (0.2%; Briefing.com consensus 0.3%) that resulted in a deceleration in the year-over-year rate to 2.4% from 2.7%. Core CPI (0.3%), matched expectations, with the year-over-year growth rate decelerating to 2.5% from 2.6%. Treasuries added to their post-data gains in morning trade, spending the afternoon in a sideways range just below their highs. Next trading week will be shortened by a day due to the Presidents Day holiday on Monday, but the next few days will still bring a big batch of economic data, including the advance reading of Q4 GDP (Briefing.com consensus 3.0%; prior 4.3%) on Thursday morning. Crude oil recorded a modest loss for the day and for the week while the U.S. Dollar Index spent the day near its unchanged level at 96.92, shedding 0.7% for the week.
• Yield Check:
  • 2-yr: -6 bps to 3.41% (-9 bps this week)
  • 3-yr: -6 bps to 3.45% (-12 bps this week)
  • 5-yr: -6 bps to 3.61% (-15 bps this week)
  • 10-yr: -5 bps to 4.06% (-15 bps this week)
  • 30-yr: -3 bps to 4.70% (-16 bps this week)

• News:
  • An adviser to Japan's Prime Minister Takaichi said that the Bank of Japan may forego a rate hike in March but is likely to raise rates later in the year.
  • Officials from the U.S. and Taiwan formalized a trade deal.
  • European Central Bank policymaker Kazaks said that the ECB is in a good position regarding rates while policymaker Nagel said that geopolitical "rivalries" could result in higher inflation.
  • China's January New Loans reached CNY4.71 trln (expected CNY5.00 trln; last CNY910 bln), January outstanding loans grew 6.1% yr/yr (expected 6.2%; last 6.4%), and January total social financing reached CNY7.22 trln (expected CNY7.05 trln; last CYN2.21 trln). January House Prices were down 3.1% yr/yr (last -2.7%).
  • South Korea's January Import Price Index was down 1.2% yr/yr (last 0.5%) while export price index was up 7.8% yr/yr (last 5.0%).
  • New Zealand's January Business PMI hit 55.2 (last 56.1). December External Migration & Visitors rose 7.0% yr/yr (last 8.2%). Q1 Inflation Expectations accelerated to 2.4% from 2.3%.
  • Eurozone's Q4 GDP expanded 0.3% qtr/qtr, as expected (last 0.3%), growing 1.3% yr/yr, as expected (last 1.4%). Q4 Employment increased by 0.2% qtr/qtr (expected 0.1%; last 0.2%), rising 0.7% yr/yr (expected 0.6%; last 0.6%). December trade surplus reached EUR12.6 bln (expected EUR11.8 bln; last EUR9.3 bln).
  • Germany's January WPI was up 0.9% m/m (expected 0.1%; last -0.2%), rising 1.2% yr/yr (last 1.2%).
  • Spain's January CPI was down 0.4% m/m, as expected (last 0.3%) but up 2.3% yr/yr (expected 2.4%; last 2.9%). January Core CPI was up 2.6% yr/yr, as expected (last 2.6%).
  • Swiss January CPI was down 0.1% m/m (expected 0.0%; last 0.0%) but up 0.1% yr/yr, as expected (last 0.1%).
• Today's Data: 
  • Total CPI increased 0.2% month-over-month in January (Briefing.com consensus: 0.3%) and was up 2.4% year-over-year, versus 2.7% for the 12 months ending in December. Core CPI, which excludes food and energy, increased 0.3% month-over-month (Briefing.com consensus: 0.3%) and was up 2.5% year-over-year, versus 2.6% for the 12 months ending in December.
    • The key takeaway from the report is that it showed some encouraging disinflation on a year-over-year basis, which the market will perceive as an opening for the Fed to consider additional rate cuts even with GDP growth running above potential.
• Commodities:
  • WTI crude: -0.1% to $62.85/bbl
  • Gold: +1.9% to $5044.10/ozt 
  • Copper: +0.2% to $5.80/lb
• Currencies:
  • EUR/USD: UNCH at 1.1867
  • GBP/USD: +0.2% to 1.3645
  • USD/CNH: +0.1% to 6.9015
  • USD/JPY: +0.1% to 152.78
• The Week Ahead:
  • Monday: Bond and equity markets closed for Presidents Day
  • Tuesday: February Empire State Manufacturing survey (Briefing.com consensus 7.1; prior 7.7) and February NAHB Housing Market Index (Briefing.com consensus 38; prior 37) at 8:30 ET
  • Wednesday: Weekly MBA Mortgage Index (prior -0.3%) at 7:00 ET; December Housing Starts (Briefing.com consensus 1.320 mln; October 1.246 mln) and December Building Permits (Briefing.com consensus 1.412 mln; October 1.330 mln), December Durable Orders (Briefing.com consensus -2.6%; prior 5.3%) and Orders ex-transportation (Briefing.com consensus 0.3%; prior 0.5%) at 8:30 ET; January Industrial Production (Briefing.com consensus 0.4%; prior 0.4%) and Capacity Utilization (Briefing.com consensus 76.5%; prior 76.3%) at 9:15 ET; $16 bln 20-yr Treasury bond auction results at 13:00 ET; January FOMC Minutes at 14:00 ET; and December Net Long-Term TIC Flows (prior $220.2 bln) at 16:00 ET
  • Thursday: Weekly Initial Claims (Briefing.com consensus 225,000; prior 227,000), Continuing Claims (prior 1.862 mln), December Trade Balance (Briefing.com consensus -$55.8 bln; prior -$56.8 bln), and February Philadelphia Fed survey (Briefing.com consensus 8.5; prior 12.6) at 8:30 ET; January Pending Home Sales (Briefing.com consensus 1.4%; prior -9.3%) at 10:00 ET; weekly natural gas inventories (prior -249 bcf) at 10:30 ET; and weekly crude oil inventories (prior +8.53 mln) at 12:00 ET
  • Friday: December Personal Income (Briefing.com consensus 0.3%; prior 0.3%), Personal Spending (Briefing.com consensus 0.2%; prior 0.5%), PCE Prices (Briefing.com consensus 0.3%; prior 0.2%), core PCE Prices (Briefing.com consensus 0.4%; prior 0.2%), advance Q4 GDP (Briefing.com consensus 3.0%; prior 4.3%) and advance Q4 Chain Deflator (Briefing.com consensus 3.3%; prior 3.8%) at 8:30 ET; flash February S&P Global U.S. Manufacturing PMI (prior 52.4) and flash February S&P Global U.S. Services PMI (prior 52.7) at 9:45 ET; final February University of Michigan Consumer Sentiment survey (Briefing.com consensus 57.3; prior 57.3) and December New Home Sales (Briefing.com consensus 714,000; prior NA) at 10:00 ET

Post-CPI Gains Maintained

• U.S. Treasuries are essentially back where they were during our last update after a brief push to fresh highs. The bulk of today's action followed the release of the January CPI report while the past few hours have seen a narrowing of the trading range. Today's advance has yields falling to fresh lows for the year with the 2-yr yield on the verge of settling at its lowest level since September 2022 while yields on 10s and 30s are back to levels seen at the start of December. Equities have overcome a shaky start with the S&P 500 (+0.5%) trimming this week's loss to 1.0%.
• Yield Check:
  • 2-yr: -5 bps to 3.42%
  • 3-yr: -5 bps to 3.46%
  • 5-yr: -5 bps to 3.62%
  • 10-yr: -4 bps to 4.06%
  • 30-yr: -3 bps to 4.70%

Gains Extended After Cool CPI

• U.S. Treasuries trade just below their highs after rising from their starting levels in reaction to the January CPI report, which was cooler than expected at the headline level (0.2%; Briefing.com consensus 0.3%) with the year-over-year growth rate decelerating to 2.4% from 2.7% in December. Core CPI (0.3%; Briefing.com consensus 0.3%) matched expectations, but the year-over-year growth rate still decelerated to 2.5% from 2.6%. The post-data advance has pressured the 2-yr yield to a fresh low for the year with the 2025 low from October (3.378%) now just four basis points away. Equities are off to a flat start with the Nasdaq (-0.2%) showing some early weakness.
• Yield Check:
  • 2-yr: -5 bps to 3.42%
  • 3-yr: -5 bps to 3.46%
  • 5-yr: -5 bps to 3.62%
  • 10-yr: -4 bps to 4.07%
  • 30-yr: -3 bps to 4.71%

Data Recon

• Total CPI increased 0.2% month-over-month in January (Briefing.com consensus: 0.3%) and was up 2.4% year-over-year, versus 2.7% for the 12 months ending in December. Core CPI, which excludes food and energy, increased 0.3% month-over-month (Briefing.com consensus: 0.3%) and was up 2.5% year-over-year, versus 2.6% for the 12 months ending in December.
  • The key takeaway from the report is that it showed some encouraging disinflation on a year-over-year basis, which the market will perceive as an opening for the Fed to consider additional rate cuts even with GDP growth running above potential.
• Yield Check:
  • 2-yr: -3 bps to 3.44%
  • 3-yr: -3 bps to 3.48%
  • 5-yr: -2 bps to 3.64%
  • 10-yr: -2 bps to 4.08%
  • 30-yr: -1 bp to 4.72%

Short End Ahead as CPI Looms

• U.S. Treasuries are on track for a slightly higher start in most tenors ahead of the 8:30 ET release of January CPI (Briefing.com consensus 0.3%; prior 0.3%) and Core CPI (Briefing.com consensus 0.3%; prior 0.2%). Treasury futures followed yesterday's rally to fresh February highs in longer tenors with a slow overnight retreat that finally found some support after the start of the European session. Global equity markets have had a mostly lower showing to end the week while the news flow was limited. There was growing speculation that President Trump will extend the current trade terms with China when he meets with President Xi in April. There were also reports that tariffs on metals and aluminum goods could be reduced. Crude oil is deepening yesterday's retreat while the U.S. Dollar Index is up 0.1% at 97.06.
• Yield Check:
  • 2-yr: -2 bps to 3.45%
  • 3-yr: -1 bp to 3.50%
  • 5-yr: -1 bp to 3.66%
  • 10-yr: UNCH at 4.10%
  • 30-yr: +1 bp to 4.74%

• News:
  • An adviser to Japan's Prime Minister Takaichi said that the Bank of Japan may forego a rate hike in March but is likely to raise rates later in the year.
  • Officials from the U.S. and Taiwan formalized a trade deal.
  • European Central Bank policymaker Kazaks said that the ECB is in a good position regarding rates while policymaker Nagel said that geopolitical "rivalries" could result in higher inflation.
  • China's January New Loans reached CNY4.71 trln (expected CNY5.00 trln; last CNY910 bln), January outstanding loans grew 6.1% yr/yr (expected 6.2%; last 6.4%), and January total social financing reached CNY7.22 trln (expected CNY7.05 trln; last CYN2.21 trln). January House Prices were down 3.1% yr/yr (last -2.7%).
  • South Korea's January Import Price Index was down 1.2% yr/yr (last 0.5%) while export price index was up 7.8% yr/yr (last 5.0%).
  • New Zealand's January Business PMI hit 55.2 (last 56.1). December External Migration & Visitors rose 7.0% yr/yr (last 8.2%). Q1 Inflation Expectations accelerated to 2.4% from 2.3%.
  • Eurozone's Q4 GDP expanded 0.3% qtr/qtr, as expected (last 0.3%), growing 1.3% yr/yr, as expected (last 1.4%). Q4 Employment increased by 0.2% qtr/qtr (expected 0.1%; last 0.2%), rising 0.7% yr/yr (expected 0.6%; last 0.6%). December trade surplus reached EUR12.6 bln (expected EUR11.8 bln; last EUR9.3 bln).
  • Germany's January WPI was up 0.9% m/m (expected 0.1%; last -0.2%), rising 1.2% yr/yr (last 1.2%).
  • Spain's January CPI was down 0.4% m/m, as expected (last 0.3%) but up 2.3% yr/yr (expected 2.4%; last 2.9%). January Core CPI was up 2.6% yr/yr, as expected (last 2.6%).
  • Swiss January CPI was down 0.1% m/m (expected 0.0%; last 0.0%) but up 0.1% yr/yr, as expected (last 0.1%).
• Commodities:
  • WTI Crude: -0.6% to $62.48/bbl
  • Gold: +0.8% to $4986.90/ozt
  • Copper: -0.8% to $5.738/lb
• Currencies:
  • EUR/USD: -0.1% to 1.1862
  • GBP/USD: -0.1% to 1.3606
  • USD/CNH: +0.2% to 6.9051
  • USD/JPY: +0.4% to 153.27
• Data out Today:
  • 8:30 ET: January CPI (Briefing.com consensus 0.3%; prior 0.3%) and Core CPI (Briefing.com consensus 0.3%; prior 0.2%)