Bond Market Update

Updated: 24-Jan-25 15:21 ET
Treasury Market Summary

Steady Finish to Sideways Week

  • U.S. Treasuries edged higher on Friday, returning to little changed for the abbreviated week. The trading day was largely uneventful despite a hefty overnight flow of news and economic reports. That said, the news developments were largely expected, as the Bank of Japan announced a 25-basis point hike, hinting at more tightening in the future, while the economic reports were free of major surprises. Flash January Manufacturing PMI readings from Japan (48.8) and Australia (49.8) remained in contraction, which was also the case in Germany (44.1), France (45.3), and the U.K. (48.2), though the last three were a bit better than expected, giving a boost to the euro and the pound. The Services side showed ongoing expansion in Japan (52.7), Australia (50.4), Germany (52.5) and the U.K. (51.2) and a slight contraction in France (48.9). The market also received PMI readings for the U.S. with the Manufacturing PMI (50.1) inching into expansionary territory while the Services PMI reading (52.8), remained in expansion, but at slower pace than what was seen in December (56.8). Treasuries reached their best levels of the session in late-morning trade, slipping from their highs into the close, but the entire action unfolded inside a narrow range ahead of next week that will bring three Treasury note auctions, the latest FOMC policy statement, and an acceleration in the flow of quarterly earnings. Crude oil was little changed today, giving back nearly $3.00/bbl for the week, while the U.S. Dollar Index fell 0.5% to 107.48, dipping below its 50-day moving average (107.58) to its lowest level in more than five weeks. The Index lost 1.8% for the week.
  • Yield Check:
    • 2-yr: -1 bp to 4.27% (UNCH for the week)
    • 3-yr: -2 bps to 4.33% (UNCH for the week)
    • 5-yr: -1 bp to 4.43% (+2 bps for the week)
    • 10-yr: -1 bp to 4.63% (+2 bps for the week)
    • 30-yr: -2 bps to 4.85% (UNCH for the week)
  • News:
    • President Trump said that he would prefer not to implement tariffs on imports from China.
    • The Bank of Japan maintained its growth forecast for FY25/26 at 1.1% and raised its CPI forecast to 2.4% from 1.9%.
    • People's Bank of China left its one-year medium term lending facility rate at 2.00%.
    • The Monetary Authority of Singapore announced a slight easing of its policy for the first time since 2020.
    • Japan's December National CPI was up 0.6% m/m (last 0.4%), rising 3.6% yr/yr (last 2.9%). December National Core CPI was up 3.0% yr/yr, as expected (last 2.7%). Flash January Manufacturing PMI hit 48.8 (expected 49.7; last 49.6) and flash Services PMI hit 52.7 (last 50.9).
    • India's flash January Manufacturing PMI hit 58.0 (expected 56.7; last 56.4) and flash Services PMI hit 56.8 (expected 59.5; last 59.3).
    • Singapore's Q4 URA Property Index was up 2.3% qtr/qtr (last -0.7%). December Industrial Production was down 0.7% m/m (expected -1.2%; last 1.7%) but up 10.6% yr/yr (expected 6.4%; last 10.8%).
    • Australia's flash January Manufacturing PMI hit 49.8 (last 47.8) and flash Services PMI hit 50.4 (last 50.8).
    • New Zealand's December Credit Card Spending was down 1.4% yr/yr (last -3.1%).
    • Eurozone's flash January Manufacturing PMI hit 46.1 (expected 45.6; last 45.1) and flash Services PMI hit 51.4, as expected (last 51.6).
    • Germany's flash January Manufacturing PMI hit 44.1 (expected 42.7; last 42.5) and flash Services PMI hit 52.5 (expected 51.1; last 51.2).
    • U.K.'s flash January Manufacturing PMI hit 48.2 (expected 46.9; last 47.0) and flash Services PMI hit 51.2 (expected 50.8; last 51.1). January CBI Distributive Trades Survey fell to -24 from -15 (expected -11).
    • France's flash January Manufacturing PMI hit 45.3 (expected 42.4; last 41.9) and flash Services PMI hit 48.9 (expected 49.3; last 49.3).
    • Spain's December PPI was up 2.3% yr/yr (last 0.9%).
  • Today's Data:
    • The S&P Global U.S. Manufacturing PMI hit 50.1 in the flash reading for January, up from 49.4 in December.
    • The S&P Global U.S. Services PMI hit 52.8 in the flash reading for January, down from 56.8 in December.
    • Existing home sales increased 2.2% month-over-month in December to a seasonally adjusted annual rate of 4.24 million (Briefing.com consensus 4.21 million) from an unrevised 4.15 million in November. Sales were up 9.3% from the same period a year ago, which was the largest increase since June 2021. On an annual basis, existing home sales in 2024 (4.06 million) dropped to their lowest level in nearly 30 years at the same time the median sales price reached a record high.
      • The key takeaway from the report is that home sales picked up in December despite higher mortgage rates, marking the third straight month of year-over-year gains with more inventory on the market than the same period a year ago.
    • The final University of Michigan Index of Consumer Sentiment for January slipped to 71.1 (Briefing.com consensus 73.0) from the preliminary reading of 73.2. The final reading for December was 74.0. In the same period a year ago, the index stood at 79.0.
      • The key takeaway from the report is that sentiment weakened as concerns about unemployment and inflation picked up.
  • Commodities:
    • WTI crude: UNCH at $74.60/bbl
    • Gold: +0.5% to $2778.50/ozt
    • Copper: -0.2% to $4.32/lb
  • Currencies:
    • EUR/USD: +0.8% to 1.0494
    • GBP/USD: +1.1% to 1.2482
    • USD/CNH: -0.6% to 7.2433
    • USD/JPY: -0.1% to 155.86
  • The Week Ahead:
    • Monday: December New Home Sales (Briefing.com consensus 680,000; prior 664,000) at 10:00 ET; $69 bln 2-yr Treasury note auction results at 11:30 ET; and $70 bln 5-yr Treasury note auction results at 13:00 ET
    • Tuesday: December Durable Orders (Briefing.com consensus 0.4%; prior -1.1%) and Durable Orders ex-transport (Briefing.com consensus 0.5%; prior -0.1%) at 8:30 ET; November FHFA Housing Price Index (prior 0.4%) and November S&P Case-Shiller Home Price Index (Briefing.com consensus 4.2%; prior 4.2%) at 9:00 ET; January Consumer Confidence (Briefing.com consensus 108.1; prior 104.7) at 10:00 ET; and $44 bln 7-yr Treasury note auction results at 13:00 ET
    • Wednesday: Weekly MBA Mortgage Index (prior 0.1%) at 7:00 ET; December advance International Goods Trade Balance (prior -$102.9 bln), advance Retail Inventories (prior 0.3%), and advance Wholesale Inventories (prior -0.2%) at 8:30 ET; weekly crude oil inventories (prior -1.02 mln) at 10:30 ET; and January FOMC Rate Decision (Briefing.com consensus 4.25-4.50%; prior 4.25-4.50%) at 14:00 ET
    • Thursday: Advance Q4 GDP (Briefing.com consensus 2.3%; prior 3.1%), advance Q4 GDP Deflator (Briefing.com consensus 2.4%; prior 1.9%), Weekly Initial Claims (Briefing.com consensus 221,000; prior 223,000), and Continuing Claims (prior 1.899 mln) at 8:30 ET; December Pending Home Sales (Briefing.com consensus 0.8%; prior 2.2%) at 10:00 ET; and weekly natural gas inventories (prior -223 bcf) at 10:30 ET
    • Friday: December Personal Income (Briefing.com consensus 0.4%; prior 0.3%), Personal Spending (Briefing.com consensus 0.5%; prior 0.4%), PCE Prices (Briefing.com consensus 0.3%; prior 0.1%), and Core PCE Prices (Briefing.com consensus 0.2%; prior 0.1%), and Q4 Employment Cost Index (Briefing.com consensus 0.9%; prior 0.8%) at 8:30 ET; and January Chicago PMI (Briefing.com consensus 41.5; prior 36.9) at 9:45 ET
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