Bond Market Update

Christmas Week Begins With Daylong Slide

• U.S. Treasuries began the Christmas week with losses across the curve, lifting yields on most tenors to fresh highs for the month. Treasuries started the day in negative territory after a night that saw a positive showing from Asian equity markets while European stocks were mostly little changed ahead of a string of Christmas-related closures over the coming three days. The overall news flow was on the light side, but it is worth noting that Congress avoided a weekend shutdown by agreeing to a three-month funding bill. Longer tenors tried to bounce during the first hour of action, but shorter tenors lagged from the start, leading the market lower as the day went on. This resulted in a daylong drift lower that was uninterrupted by today's $69 bln 2-yr note auction, even though the sale met excellent demand ahead of tomorrow's $70 bln 5-yr note offering. The retreat was also unimpeded by today's data releases, even though every report came up shy of expectations. Crude oil stayed just below its 50-day moving average (69.72) while the U.S. Dollar Index rose 0.4% to 108.07.
• Yield Check:
  • 2-yr: +4 bps to 4.35%
  • 3-yr: +5 bps to 4.37%
  • 5-yr: +7 bps to 4.45%
  • 10-yr: +8 bps to 4.60%
  • 30-yr: +7 bps to 4.78%

• News:
  • European Central Bank President Lagarde said that the time is approaching when it could be declared that inflation has sustainably returned to the 2.0% target while policymakers Vujcic and Makhlouf spoke in favor of additional rate cuts in 2025.
  • Japan's Cabinet office maintained its overall economic assessment in the report for December.
  • Executives from Nissan and Honda met with Japanese officials to discuss their merger plans.
  • China's GAC Motor expects to report a 20% yr/yr decrease in vehicle sales for 2024 but it expects 15% yr/yr growth in 2025.
  • Singapore's November CPI was unchanged m/m (last -0.3%), rising 1.6% yr/yr (expected 1.8%; last 1.4%). November Core CPI was up 1.9% yr/yr (expected 2.1%; last 2.1%).
  • Germany's November Import Price Index was up 0.9% m/m (expected 0.5%; last 0.6%), rising 0.6% yr/yr (last -0.8%).
  • U.K.'s Q3 GDP was unchanged qtr/qtr (expected 0.1%; last 0.4%), rising 0.9% yr/yr (expected 1.0%; last 0.7%). Q3 Business Investment was up 1.9% qtr/qtr (expected 1.2%; last 1.8%), rising 5.8% yr/yr (expected 4.5%; last 1.4%). Q3 Current Account deficit reached GBP18.1 bln (expected deficit of GBP22.9 bln; last deficit of GBP24.0 bln).
  • Italy's November non-EU trade surplus reached EUR5.91 bln (last surplus of EUR5.81 bln).
  • Spain's Q3 GDP was up 0.8% qtr/qtr, as expected (last 0.8%), expanding 3.3% yr/yr (expected 3.4%; last 3.1%).
  • Swiss December ZEW Expectations fell to -20.0 from -12.4.
• Today's Data: 
  • Durable goods orders declined 1.1% month-over-month in November (Briefing.com consensus -0.3%) following an upwardly revised 0.8% increase (from 0.2%) in October. Excluding transportation, durable goods orders decreased 0.1% month-over-month (Briefing.com consensus 0.3%) following an upwardly revised 0.2% increase (from 0.1%) in October.
    • The key takeaway from the report is that it showed a rebound in business spending in November, evidenced by a 0.7% increase in new orders for nondefense capital goods excluding aircraft -- a proxy for business spending -- following a 0.1% decline in October.
  • The Conference Board's Consumer Confidence Index dropped to 104.7 in December (Briefing.com consensus 113.5) from an upwardly revised 112.8 (from 111.7) in November.
    • The key takeaway from the report is that consumers were substantially less optimistic about future business conditions and incomes than they were last month.
  • New home sales increased 5.9% month-over-month in November to a seasonally adjusted annual rate of 664,000 units (Briefing.com consensus 670,000) from an upwardly revised 627,000 (from 610,000) in October. On a year-over-year basis, new home sales were up 8.7%.
    • The key takeaway from the report is that new home sales, which are tabulated when contracts are signed, increased in November with the help of lower selling prices that were needed to help offset affordability constraints driven by rising mortgage rates.
  • $69 bln 2-year Treasury note auction results (prior 12-auction average):
    • High yield: 4.335% (4.393%).
    • Bid-to-cover: 2.73 (2.63).
    • Indirect bid: 82.1% (65.9%).
    • Direct bid: 6.6% (20.1%).
• Commodities:
  • WTI crude: -0.3% to $69.25/bbl
  • Gold: -0.6% to $2628.10/ozt
  • Copper: -0.5% to $4.09/lb
• Currencies:
  • EUR/USD: -0.1% to 1.0413
  • GBP/USD: -0.2% to 1.2538
  • USD/CNH: +0.2% to 7.3068
  • USD/JPY: +0.4% to 157.06
• The Day Ahead:
  • 13:00 ET: NYSE early close
  • 14:00 ET: Treasury market early close
• Treasury Auctions:
  • 11:30 ET: $70 bln 5-yr Treasury note auction results