Bond Market Update

Belly Paces Wednesday Dip

• U.S. Treasuries retreated on Wednesday with longer tenors giving back the bulk of their gains from Tuesday. The market ranged near yesterday's closing levels in early trade, which was not a huge surprise given the lack of top-tier data from the U.S. and overseas, though there were some noteworthy news developments. Namely, President Trump threatened to impose a 10% tariff on imports from China as early as February 1 and he also announced a $500 bln AI infrastructure fund with backing from SoftBank, Oracle (ORCL), and Microsoft's (MSFT) OpenAI. That announcement gave a strong boost to the technology sector, which lifted the equity market even as Treasuries headed lower after their range-bound start. The intraday selling lifted the 10-yr yield toward its closing level from last week while afternoon trade saw a shallow bounce off lows in longer tenors, which followed a strong $13 bln 20-yr bond reopening. Crude oil inched down toward its 200-day moving average (75.21) while the U.S. Dollar Index rose 0.1% to 108.19.
• Yield Check:
  • 2-yr: +2 bps to 4.30%
  • 3-yr: +2 bps to 4.35%
  • 5-yr: +3 bps to 4.43%
  • 10-yr: +3 bps to 4.60%
  • 30-yr: +1 bp to 4.81%

• News:
  • Several European Central Bank policymakers, including President Lagarde, said that gradual rate cuts are appropriate at this time.
  • British Chancellor Reeves insisted that the U.K.'s public finances are now in order.
  • The market is almost certain that the Bank of Japan will announce a 25-basis point rate hike on Friday.
  • South Korea's January Consumer Confidence rose to 91.2 from 88.4.
  • Australia's December MI Leading Index was unchanged (last 0.1%).
  • New Zealand's Q4 CPI was up 0.5% qtr/qtr, as expected (last 0.6%), rising 2.2% yr/yr (expected 2.1%; last 2.2%).
  • U.K.'s December Public Sector Net Borrowing reached GBP17.81 bln (expected GBP14.20 bln; last GBP11.80 bln) and Public Sector Net Cash Requirement reached GBP19.88 bln (last GBP13.13 bln).
• Today's Data:
  • The weekly MBA Mortgage Index ticked up 0.1% to follow last week's 33.3% jump. The Purchase Index rose 0.6% while the Refinance Index was down 2.9%.
  • Conference Board's Leading Economic Index was down 0.1% in December (Briefing.com consensus 0.0%) after a revised 0.4% increase (from 0.3%) in November.
  • $13 bln 20-year Treasury bond reopening results (prior 12-auction average):
    • High yield: 4.900% (4.507%).
    • Bid-to-cover: 2.75 (2.58).
    • Indirect bid: 69.5% (69.2%).
    • Direct bid: 20.1% (17.1%).
• Commodities:
  • WTI crude: -0.7% to $75.47/bbl
  • Gold: +0.4% to $2770.60/ozt
  • Copper: -0.9% to $4.30/lb
• Currencies:
  • EUR/USD: -0.1% to 1.0422
  • GBP/USD: -0.2% to 1.2327
  • USD/CNH: +0.2% to 7.2798
  • USD/JPY: +0.7% to 156.46
• The Day Ahead:
  • 8:30 ET: Weekly Initial Claims (Briefing.com consensus 219,000; prior 217,000) and Continuing Claims (prior 1.859 mln)
  • 10:30 ET: Weekly natural gas inventories (prior -258 bcf)
  • 12:00 ET: Weekly crude oil inventories (prior -1.96 mln)