Bond Market Update

Inching Higher Ahead of December PPI

• U.S. Treasuries are on track for a slightly higher start ahead of the 8:30 ET release of December PPI (Briefing.com consensus 0.3%; prior 0.4%) and Core PPI (Briefing.com consensus 0.2%; prior 0.2%), which will contribute to the market's quick-shifting rate cut expectations. Treasury futures inched higher during the Asian session before giving back the bulk of their gains once the focus shifted to action in Europe. The overnight session saw a positive showing from most equity markets in Asia, followed by more gains in Europe. China's Shanghai Composite (+2.5%) was a standout after the release of strong total social financing figures for December and a vow from China Securities Regulatory Commission to stabilize the market. In the U.S., President-elect Trump's advisors are considering gradual tariff increases on a monthly basis rather than a one-time increase. On a related note, the NFIB Small Business Optimism Index for December rose to 105.1 from 101.7, hitting a level not seen since late 2018. Crude oil is dipping from its highest level since mid-August while the U.S. Dollar Index is down 0.3% at 109.59.
• Yield Check:
  • 2-yr: -1 bp to 4.39%
  • 3-yr: -1 bp to 4.49%
  • 5-yr: -2 bps to 4.60%
  • 10-yr: -1 bp to 4.79%
  • 30-yr: -1 bp to 4.98%

• News:
  • Bank of Japan Deputy Governor Himino delivered a speech that was deemed as dovish ahead of next Friday's policy update, though he added that the central bank does not like to tip its hand when it comes to upcoming decisions.
  • European Central Bank policymaker Rehn said that rate cuts will continue taking place, though the threat of tariffs from the incoming Trump administration poses a risk to the overall outlook.
  • Bank of France continues expecting no growth in the domestic economy for Q4.
  • BP reduced its outlook for upstream production for Q4.
  • Spain is reportedly planning a 100% tax for property purchases by non-EU residents.
  • China's December New Loans reached CNY990.0 bln (expected CNY890.0 bln; last CNY580.0 bln). December Outstanding Loans grew 7.6% yr/yr, as expected (last 7.7%) and December total social financing reached CNY2.86 trln (expected CNY2.00 trln; last CNY2.34 trln).
  • Japan's December Bank Lending was up 3.1% yr/yr, as expected (last 2.9%). November Current Account surplus reached JPY3.03 trln (expected surplus of JPY2.59 trln; last surplus of JPY2.41 trln). December Economy Watchers Current Index rose to 49.9 from 49.4 (expected 49.4).
  • India's December WPI Inflation was up 2.37% yr/yr (expected 2.30%; last 1.89%) and WPI Manufacturing Inflation was up 2.14% (last 2.00%).
  • Australia's January Westpac Consumer Sentiment was down 0.7% (last -2.0%). November Building Approvals decreased 3.6% m/m, as expected (last 5.2%) and Private House Approvals decreased 1.7% m/m, as expected (last -4.0%).
  • New Zealand's Q4 NZIER Business Confidence was up 16% (last -1%).
  • France's November government budget deficit reached EUR172.5 bln (last deficit of EUR157.4 bln).
  • Italy's November Industrial Production was up 0.3% m/m (expected 0.0%; last 0.1%) but down 1.5% yr/yr (last -3.5%).
• Commodities:
  • WTI Crude: -0.2% to $78.64/bbl
  • Gold: +0.1% to $2680.30/ozt
  • Copper: +0.3% to $4.337/lb
• Currencies:
  • EUR/USD: +0.1% to 1.0247
  • GBP/USD: -0.3% to 1.2162
  • USD/CNH: UNCH at 7.3486
  • USD/JPY: +0.3% to 157.86
• Data out Today:
  • 6:00 ET: December NFIB Small Business Optimism (actual 105.1; prior 101.7)
  • 8:30 ET: December PPI (Briefing.com consensus 0.3%; prior 0.4%) and Core PPI (Briefing.com consensus 0.2%; prior 0.2%)
  • 14:00 ET: December Treasury Budget (prior -$367.0 bln)