Bond Market Update

Longer Tenors Ahead as Second Trump Term Starts

• U.S. Treasuries began the holiday-shortened week with modest gains in longer tenors while the 2-yr note underperformed, finishing slightly lower. The Tuesday session was generally quiet even though President Trump was sworn in yesterday for a second term, signing a raft of executive orders on his first day. The new president signed orders to open the door to additional oil and gas drilling, but did not take immediate action on tariffs. Instead, he threatened to impose a 25% tariff on imports from Canada and Mexico as early as February 1 and called for an assessment of China's adherence to the U.S.-China trade agreement. The 5-yr note and longer tenors spent morning trade near their opening highs, inching down from their best levels as the day went on while the 2-yr note gave back its slight gain in early action, holding onto a slim loss into the close. Crude oil deepened its pullback from a level not seen since late July while the U.S. Dollar Index fell 1.2% to 108.07, deepening its pullback from levels not seen in more than two years.
• Yield Check:
  • 2-yr: +1 bp to 4.28%
  • 3-yr: UNCH at 4.33%
  • 5-yr: -2 bps to 4.40%
  • 10-yr: -4 bps to 4.57%
  • 30-yr: -4 bps to 4.80%

• News:
  • The Senate Finance Committee voted 16-11 to advance Scott Bessent's nomination for Treasury Secretary to a full Senate vote.
  • The U.S. will leave the World Health Organization and the Paris climate agreement.
  • President Trump rescinded the Biden administration's ban on oil drilling in the Arctic Sea.
  • China's President Xi repeated that a more proactive macroeconomic policy will be sought in 2025.
  • Japan's Economy Minister Muto said that his country wants to cooperate with the U.S. on semiconductor development.
  • South Korea's acting president Choi said that his country wants to cooperate with the U.S. on shipbuilding.
  • European Central Bank policymaker Kazimir said that a January rate cut is certain and that there could be three or four rate cuts in a row.
  • Hong Kong's December CPI was up 0.1% m/m (last 0.0%), rising 1.4% yr/yr (expected 1.5%; last 1.4%).
  • South Korea's December PPI was up 0.3% m/m (last 0.1%), rising 1.7% yr/yr (last 1.4%).
  • New Zealand's December Electronic Card Retail Sales rose 2.0% m/m (last 0.1%) but were down 1.0% yr/yr (last -2.3%). December RBNZ Offshore Holdings rose to 59.2% from 58.6%.
  • Eurozone's January ZEW Economic Sentiment hit 18.0 (expected 16.9; last 17.0)
  • Germany's January ZEW Economic Sentiment hit 10.3 (expected 15.2; last 15.7) and ZEW Current Conditions hit -90.4 (expected -93.1; last -93.1).
  • U.K.'s November Average Earnings Index + Bonus rose 5.6% yr/yr, as expected (last 5.2%). November three-month employment increased by 35,000, as expected (last 173,000) and November Unemployment Rate rose to 4.4% from 4.3% (expected 4.3%).
• Commodities:
  • WTI crude: -1.7% to $75.99/bbl
  • Gold: +0.4% to $2759.40/ozt
  • Copper: -0.5% to $4.34/lb
• Currencies:
  • EUR/USD: UNCH at 1.0419
  • GBP/USD: UNCH at 1.2330
  • USD/CNH: +0.1% to 7.2677
  • USD/JPY: -0.1% to 155.53
• The Day Ahead:
  • 7:00 ET: Weekly MBA Mortgage Index (prior 33.3%)
  • 10:00 ET: December Leading Indicators (Briefing.com consensus 0.0%; prior 0.3%) 
  • 10:30 ET: Weekly crude oil inventories (prior -1.96 mln)
• Treasury Auctions:
  • 13:00 ET: $13 bln 20-yr Treasury bond reopening results