Bond Market Update

Treasury Auction Preview

• $39 bln 10-year Treasury note reopening (results at 13:00 ET):
  • Prior auction results:
    • High yield: 4.177%
    • Bid-to-cover: 2.39
    • Indirect bid: 64.5%
    • Direct bid: 22.1%
  • Average results of previous 12 auctions:
    • High yield: 4.240%
    • Bid-to-cover: 2.53
    • Indirect bid: 70.7%
    • Direct bid: 19.3%

Losses Extended

• U.S. Treasuries have added to their early losses, lifting yields on most tenors past their highs from Friday. The long bond has been at the forefront of today's weakness, sending its yield past its 50-day (4.796%) and 200-day (4.800%) moving averages to a one-month high. The 10-yr yield has also reached its highest level in a month with its 200-day moving average (4.198%) looming above. Treasuries added to their starting losses after the release of an in-line CPI report for February (0.3%; Briefing.com consensus 0.3%), holding at their lows after the IEA recently confirmed an agreement for an emergency release of 400 million barrels of oil from its 32 member states. Equities are off to a slightly higher start in the S&P 500 (+0.1%) with relative strength in the Nasdaq (-0.4%).
• Yield Check:
  • 2-yr: +6 bps to 3.63%
  • 3-yr: +5 bps to 3.64%
  • 5-yr: +5 bps to 3.77%
  • 10-yr: +5 bps to 4.19%
  • 30-yr: +6 bps to 4.83%

Data Recon

• Total CPI increased 0.3% month-over-month in February (Briefing.com consensus 0.3%) and was up 2.4% year-over-year, versus 2.4% for the 12 months ending in January. Core CPI, which excludes food and energy, increased 0.2% month-over-month (Briefing.com consensus 0.2%) and was up 2.5% year-over-year, versus 2.5% for the 12 months ending in January.
  • The key takeaway from the report is that it matched expectations at the headline and core levels, which is mildly positive since the recent surge in energy prices will increase the market's expectations for a hotter reading in March.
• Yield Check:
  • 2-yr: +4 bps to 3.61%
  • 3-yr: +4 bps to 3.63%
  • 5-yr: +4 bps to 3.76%
  • 10-yr: +5 bps to 4.18%
  • 30-yr: +6 bps to 4.83%

Slipping Ahead of February CPI

• U.S. Treasuries are on track for a modestly lower start across the curve. Treasury futures climbed in early evening action, but their modest gains faded as the night went on with the market hitting lows about two hours ago. The selling has coincided with weakness in other sovereign debt while global equity markets have been mixed. The International Energy Agency proposed a 400-million barrel reserve release to lower global oil prices. G7 officials will discuss the proposal today, though there are concerns about how quickly the reserves will be accessible. Today's session will feature the 8:30 ET release of February CPI (Briefing.com consensus 0.3%; prior 0.2%) and Core CPI (Briefing.com consensus 0.2%; prior 0.3%), a report that will be watched closely by a market that is already expecting a hot reading for March due to the surge in energy prices. Crude oil hovers near $85/bbl while the U.S. Dollar Index is up 0.2% at 98.98.
• Yield Check:
  • 2-yr: +3 bps to 3.60%
  • 3-yr: +3 bps to 3.62%
  • 5-yr: +3 bps to 3.75%
  • 10-yr: +3 bps to 4.17%
  • 30-yr: +3 bps to 4.81%

• News:
  • FT reported that JPMorgan has started marking down some private credit portfolios linked to software debt.
  • Honeywell (HON) sold $15.5 bln worth of senior notes, adding to yesterday's big corporate debt offering slate.
  • Japan's trade minister Akazawa said that Japan can release oil reserves without coordinating with G7.
  • South Korea's exports were up 55.6% yr/yr through the first ten days of March with chip exports spiking 175.9% to a record of $7.6 bln.
  • South Korea's Industry Ministry said that it took part in IEA discussions about oil reserves and it is reviewing which position to take.
  • The Reserve Bank of Australia is expected to announce a rate hike next week after hawkish comments from Deputy Governor Hauser.
  • The U.K.'s Office for Budget Responsibility expects British inflation to end the year at 3% if energy prices remain at their current levels.
  • European Central Bank policymakers Nagel, Kazimir, and Kazaks spoke in favor of holding policy steady at next week's ECB meeting.
  • Japan's February PPI was down 0.1% m/m (expected 0.1%; last 0.2%) but up 2.0% yr/yr (expected 2.2%; last 2.3%).
  • Germany's February CPI was up 0.2% m/m, as expected (last 0.1%), rising 1.9% yr/yr, as expected (last 2.1%)
  • Spain's January Retail Sales rose 4.0% yr/yr (last 2.8%).
• Commodities:
  • WTI Crude: +3.6% to $86.45/bbl
  • Gold: -0.9% to $5195.20/ozt
  • Copper: -1.7% to $5.851/lb
• Currencies:
  • EUR/USD: -0.1% to 1.1601
  • GBP/USD: +0.2% to 1.3434
  • USD/CNH: UNCH at 6.8721
  • USD/JPY: +0.3% to 158.47
• Data out Today:
  • 7:00 ET: Weekly MBA Mortgage Index (actual 3.2%; prior 11.0%)
  • 8:30 ET: February CPI (Briefing.com consensus 0.3%; prior 0.2%) and Core CPI (Briefing.com consensus 0.2%; prior 0.3%)
  • 10:30 ET: Weekly crude oil inventories (prior +3.48 mln)
  • 14:00 ET: February Treasury Budget (Briefing.com consensus -$170.0 bln; prior -$94.6 bln)
• Treasury Auctions:
  • 13:00 ET: $39 bln 10-yr Treasury note reopening results

Shorter Tenors Trim Recent Losses

• U.S. Treasuries were mixed on Tuesday with 5s and shorter tenors recording modest gains while the long bond lagged after outperforming during the market's recent slide from February highs. Shorter tenors outperformed from the start after a night that saw some improvement in overall sentiment thanks to a continuation of crude oil's reversal from its highest level since mid-2022. Oil fell as low as $76.73/bbl after President Trump said last night that the Iran campaign is ahead of schedule and should end soon. However, there were still some persistent worries about shipping disruptions as the day went on. Treasuries reached highs in late morning action but faced some pressure after a weak $58 bln 3-yr note sale. The market faced additional selling during the final hour of trade after CBS reported that U.S. officials are seeing evidence of Iran deploying naval mines in the Strait of Hormuz. That selling sent the 10-yr note back to its unchanged level while shorter tenors trimmed their gains. Crude oil fell back below $85/bbl, turning negative for the week, while the U.S. Dollar Index fell 0.4% to 98.80.
• Yield Check:
  • 2-yr: -2 bps to 3.57%
  • 3-yr: -2 bps to 3.59%
  • 5-yr: -2 bps to 3.72%
  • 10-yr: UNCH at 4.14%
  • 30-yr: +3 bps to 4.77%

• News:
  • Amazon (AMZN) launched an eleven-part senior unsecured note offering, seeking to raise up to $30 bln and EUR10 bln with debt maturities ranging from two years to 50 years.
  • European Central Bank policymaker Muller said that the likelihood of a rate hike has increased, but there is no need to rush to a decision.
  • China's February trade surplus reached $90.98 bln (expected surplus of $177.4 bln; last surplus of $114.1 bln) as imports grew 13.8% yr/yr (expected 6.3%; last 5.7%) and exports rose 39.6% yr/yr (expected 7.1%; last 6.6%).
  • Japan's Q4 GDP expanded 0.3% qtr/qtr (expected 0.1%; last -0.6%), growing 1.3% yr/yr (expected 0.2%; last -2.3%). Q4 GDP Price Index was up 3.4% yr/yr, as expected (last 3.4%). January Household Spending was down 2.5% m/m (expected 0.8%; last -2.2%), falling 1.0% yr/yr (expected 2.4%; last -2.6%). February Machine Tool Orders jumped 24.2% yr/yr (expected 25.3%; last 10.6%).
  • South Korea's Q1 GDP contracted 0.2% qtr/qtr (expected -0.3%; last 1.3%) but was up 1.6% yr/yr (expected 1.7%; last 1.8%).
  • Australia's Westpac Consumer Sentiment was up 1.2% m/m (last -2.6%). February NAB Business Confidence fell to -1 from 4 and February NAB Business Survey remained at 7. January Building Approvals were down 7.2% m/m, as expected (last -14.9%), falling 15.7% yr/yr (expected 8.1%; last 0.4%). January Private House Approvals rose 1.1% m/m, as expected (last 0.4%).
  • Germany's January trade surplus reached EUR21.2 bln (expected surplus of EUR15.4 bln; last surplus of EUR17.4 bln) as imports fell 5.9% m/m (last 1.3%) and exports decreased 2.3% m/m (last 3.9%).
  • France's January trade deficit reached EUR1.8 bln (expected deficit of EUR5.2 bln; last deficit of EUR4.3 bln) and January Current Account surplus reached EUR2.1 bln (last surplus of EUR100 mln).
• Today's Data: 
  • Existing home sales increased 1.7% month-over-month in February to a seasonally adjusted annual rate of 4.09 million (Briefing.com consensus 3.88 million) from a revised 4.02 million (from 3.91 million) in January. Sales were down 1.4% on a year-over-year basis.
    • The key takeaway from the report is that sales increased despite continued pressure on affordability as median prices grew for the 32nd month in a row.
  • The NFIB Small Business Optimism Index fell to 98.8 in February (Briefing.com consensus 99.5) from 99.3 in January.
  • $58 bln 3-year Treasury note auction results (prior 12-auction average):
    • High yield: 3.579% (3.702%).
    • Bid-to-cover: 2.55 (2.62).
    • Indirect bid: 59.8% (63.2%).
    • Direct bid: 20.7% (23.6%).
• Commodities: 
  • WTI crude: -11.5% to $83.85/bbl
  • Gold: +2.5% to $5242.50/ozt
  • Copper: +2.1% to $5.95/lb
• Currencies:
  • EUR/USD: -0.1% to 1.1622
  • GBP/USD: -0.1% to 1.3428 
  • USD/CNH: -0.1% to 6.8749
  • USD/JPY: +0.1% to 157.88
• The Day Ahead:
  • 7:00 ET: Weekly MBA Mortgage Index (prior 11.0%)
  • 8:30 ET: February CPI (Briefing.com consensus 0.3%; prior 0.2%) and Core CPI (Briefing.com consensus 0.2%; prior 0.3%) 
  • 10:30 ET: Weekly crude oil inventories (prior +3.48 mln)
  • 14:00 ET: February Treasury Budget (Briefing.com consensus -$170.0 bln; prior -$94.6 bln)
• Treasury Auctions:
  • 13:00 ET: $39 bln 10-yr Treasury note reopening results at 13:00 ET