Bond Market Update

Short End Outperforms

• Longer-dated U.S. Treasuries faced some pressure on Thursday while the short end held up well, with the 2-yr note eking out a modest gain. The 5-yr note and longer tenors started the cash session in negative territory after facing some pressure alongside European sovereign debt in the overnight futures market. The early weakness invited some more intraday selling even though the latest weekly jobless claims report (223,000; Briefing.com consensus 219,000) showed a larger increase in claims than the market had expected. The intraday selling produced lows in the long bond around noon, followed by a late bounce that returned the 10-yr note to its opening level of the day while the 5-yr note overtook its starting mark. The 2-yr note had the best showing, as it defended a modest gain throughout the day, finishing on its high. Tomorrow's session will feature the release of flash Manufacturing and Services PMI readings from the U.S. and other major economies, but the market will also get a chance to respond to what is expected to be a 25-basis point rate hike from the Bank of Japan. Crude oil fell below its 200-day moving average (75.16) to its lowest level in nearly two weeks while the U.S. Dollar Index slipped 0.1% to 108.03.
• Yield Check:
  • 2-yr: -2 bps to 4.28%
  • 3-yr: UNCH at 4.35%
  • 5-yr: +2 bps to 4.44%
  • 10-yr: +4 bps to 4.64%
  • 30-yr: +6 bps to 4.87%

• News:
  • European Central Bank President Lagarde warned that the region must prepare for potential trade policy shifts.
  • British Chancellor Reeves said that she will find ways to meet fiscal rules and that any additional measures that may be needed will be announced on March 26.
  • China Securities Regulatory Commission announced that at least CNY100 bln will flow into A-shares from state-owned insurers each year with a pilot scheme starting during the first half of 2025.
  • A People's Bank of China official said that liquidity tools will be enhanced and that requirements for share buyback loans are being lowered.
  • South Korean chipmaker SK Hynix reported record quarterly results coupled with somewhat cautious guidance.
  • Japan's December trade surplus reached JPY130.9 bln (expected deficit of JPY55.0 bln; last deficit of JPY110.3 bln) as imports grew 1.8% yr/yr (expected 2.6%; last -3.8%) and exports rose 2.8% yr/yr (expected 2.3%; last 3.8%).
  • South Korea's Q4 GDP expanded 0.1% qtr/qtr (expected 0.2%; last 0.1%), growing 1.2% yr/yr (expected 1.4%; last 1.5%).
  • Singapore's December CPI was up 0.4% m/m (last 0.0%), rising 1.6% yr/yr (expected 1.5%; last 1.6%).
  • New Zealand's November External Migration & Visitors increased 5.9% m/m (last 6.3%).
  • U.K.'s January CBI Industrial Trends Orders rose to -34 from -40 (expected -35).
  • France's January Business Survey fell to 95 from 97 (expected 96).
• Today's Data:
  • Initial jobless claims for the week ending January 18 increased by 6,000 to 223,000 (Briefing.com consensus 219,000) while continuing jobless claims for the week ending January 11 jumped by 46,000 to 1.899 million -- the highest level since November 13, 2021.
    • The key takeaway from the report is the elevated level of continuing jobless claims, which connotes some increasing challenges in finding new employment after being laid off.
  • Weekly crude oil inventories decreased by 1.02 mln barrels after decreasing by 1.96 mln barrels a week ago.
  • Weekly natural gas inventories decreased by 223 bcf after decreasing by 258 bcf a week ago.
  • The U.S. Treasury sold $20 bln in 10-yr TIPS at a high yield of 2.243% (prior 2.071%) at a bid-to-cover ratio of 2.48x.
• Commodities:
  • WTI crude: -1.2% to $74.59/bbl
  • Gold: -0.2% to $2765.50/ozt
  • Copper: +0.7% to $4.33/lb
• Currencies:
  • EUR/USD: +0.2% to 1.0423
  • GBP/USD: +0.4% to 1.2358
  • USD/CNH: +0.1% to 7.2849
  • USD/JPY: -0.4% to 155.79
• The Day Ahead:
  • 9:45 ET: Flash January S&P Global U.S. Manufacturing PMI (prior 49.4) and flash January S&P Global U.S. Services PMI (prior 56.8)
  • 10:00 ET: December Existing Home Sales (Briefing.com consensus 4.21 mln; prior 4.15 mln) and final January University of Michigan Consumer Sentiment (Briefing.com consensus 73.0; prior 74.0)