Bond Market Update

Monday Rally Moderated

• U.S. Treasuries followed their Monday rally with a Tuesday dip that gave back a modest portion of the gains from the start of the week. The bulk of the action took place at the open with the market slipping out of the gate, followed by a daylong drift in a sideways range near Monday's intraday lows. The lower start was followed by a small bounce attempt, but the market found resistance near levels from Monday morning, eventually slipping past opening lows. That movement established the trading range for the day with the market returning to the top end of that range in the afternoon with help from a strong $44 bln 7-yr note auction, which capped this week's quick slate of note offerings ahead of tomorrow's FOMC Rate Decision. The market is not expecting a rate cut tomorrow, but the FOMC Statement and Fed Chairman Powell's comments will be dissected to evaluate the potential for a cut in May, which is currently being seen as a toss-up. Crude oil climbed off levels last seen at the start of the month while the U.S. Dollar Index rose 0.5% to 107.89.
• Yield Check:
  • 2-yr: +2 bps to 4.21%
  • 3-yr: +2 bps to 4.26%
  • 5-yr: +2 bps to 4.35%
  • 10-yr: +2 bps to 4.55%
  • 30-yr: +2 bps to 4.79%

• News:
  • The Atlanta Fed's GDPNow forecast for Q4 GDP was increased to 3.2% from 3.0% in the previous estimate.
  • President Trump is being advised to hold off on making tariff-related decisions until the completion of trade review at the start of April, according to CNBC.
  • The Senate voted 68-20 to confirm Scott Bessent as the new Treasury Secretary.
  • The European Central Bank's Q4 lending survey showed a larger than expected tightening in corporate credit with more tightening expected in 2025.
  • British Prime Minister Starmer repeated that boosting growth is a top priority for his government.
  • Swiss National Bank Chairman Schlegel said that inflation is expected to be low this year and that rates could go negative if needed.
  • Japan's opposition is threatening to block a budget if Prime Minister Ishiba does not agree to a higher tax-free allowance.
  • China Vanke will receive state support after two executives resigned. The company expects to record a $6.2 bln net loss for 2024.
  • Japan's November BoJ Core CPI was up 1.9% yr/yr (expected 1.7%; last 1.7%) and December Corporate Services Price Index was up 2.9% yr/yr (expected 3.2%; last 3.0%).
  • Hong Kong's December M3 Money Supply increased 2.8% (last 2.4%).
  • Australia's December NAB Business Survey rose to 6 from 2 and Business Confidence ticked up to -2 from -3.
  • France's January Consumer Confidence rose to 92 from 89 (expected 90).
  • Spain's Q4 Unemployment Rate fell to 10.6% from 11.2% (expected 11.1%).
• Today's Data:
  • The Conference Board's Consumer Confidence Index dropped to 104.1 in January (Briefing.com consensus 108.1) from an upwardly revised 109.5 (from 104.7) in December.
    • The key takeaway from the report is that consumers, in general, remained pessimistic about future employment prospects.
  • New orders for durable goods declined 2.2% month-over-month in December (Briefing.com consensus 0.4%) following a downwardly revised 2.0% month-over-month decline (from -1.1%) in November. Excluding transportation, durable goods orders increased 0.3% (Briefing.com consensus 0.5%) following a downwardly revised 0.2% decline (from -0.1%) in November.
    • The key takeaway from the report, though, is the understanding that new orders for nondefense capital goods excluding aircraft -- a proxy for business spending -- were up 0.5% on the heels of a 0.9% increase in November, thereby softening the disappointment of the headline number.
  • The FHFA Housing Price Index was up 0.3% in November after increasing 0.5% in October.
  • The S&P Case-Shiller Home Price Index was up 4.3% in November (Briefing.com consensus 4.2%) after increasing 4.2% in October.
  • $44 bln 7-year Treasury note auction results (prior 12-auction average):
    • High yield: 4.457% (4.233%).
    • Bid-to-cover: 2.64 (2.58).
    • Indirect bid: 67.1% (71.2%).
    • Direct bid: 23.1% (16.9%).
• Commodities:
  • WTI crude: +0.8% to $73.76/bbl
  • Gold: +1.1% to $2678.60/ozt
  • Copper: +0.5% to $4.25/lb
• Currencies:
  • EUR/USD: -0.6% to 1.0430
  • GBP/USD: -0.5% to 1.2440
  • USD/CNH: +0.4% to 7.2763
  • USD/JPY: +0.7% to 155.58
• The Day Ahead:
  • 7:00 ET: Weekly MBA Mortgage Index (prior 0.1%)
  • 8:30 ET: December advance International Goods Trade Balance (prior -$102.9 bln), advance Retail Inventories (prior 0.3%), and advance Wholesale Inventories (prior -0.2%)
  • 10:30 ET: Weekly crude oil inventories (prior -1.02 mln)
  • 14:00 ET: January FOMC Rate Decision (Briefing.com consensus 4.25-4.50%; prior 4.25-4.50%)