Bond Market Update

Inching Higher Ahead of FOMC

• U.S. Treasuries are on track for a modestly higher start after a quiet advance in the overnight futures market. Ongoing holiday closures in China, Hong Kong, and South Korea kept overall volume on the light side and the news flow did not offer major surprises. Australia reported cooler-than-expected inflation for Q4, boosting expectations for a February rate cut from the Reserve Bank of Australia. Elsewhere, Sweden's Riksbank announced a 25-basis point rate cut to 2.25% today while the European Central Bank is also expected to announce a cut tomorrow. Participants will hear from the FOMC this afternoon, and while a rate cut is not expected, the announcement and the subsequent press conference will help shape expectations for the next couple meetings. Crude oil is giving back yesterday's gain while the U.S. Dollar Index is up 0.2% at 108.12.
• Yield Check:
  • 2-yr: -2 bps to 4.19%
  • 3-yr: -2 bps to 4.24%
  • 5-yr: -3 bps to 4.32%
  • 10-yr: -3 bps to 4.52%
  • 30-yr: -3 bps to 4.76%

• News:
  • Japan's Household Confidence for January (35.2) fell to its lowest level since September 2023.
  • Japan's Government Pension Investment Fund will be allowed to bid directly in bond auctions.
  • Expectations for a February rate cut from the Reserve Bank of Australia are growing after the release of a cooler than expected CPI report for Q4.
  • Sweden's Riksbank lowered its policy rate by 25 basis points to 2.25% and indicated plans for more easing.
  • There is renewed uncertainty over the likelihood of France's government reaching a budget agreement after Prime Minister Bayrou made comments about immigration.
  • Japan's January Household Confidence fell to 35.2 from 36.2 (expected 36.6).
  • Australia's Q4 CPI was up 0.2% qtr/qtr (expected 0.3%; last 0.2%), rising 2.4% yr/yr (expected 2.5%; last 2.8%).
  • Eurozone's December Private Sector Loans rose 1.1% yr/yr (expected 1.0%; last 0.9%) and loans to nonfinancials rose 1.5% yr/yr (last 1.0%).
  • Germany's February GfK Consumer Climate fell to -22.4 from -21.4 (expected -20.5).
  • Italy's January Business Confidence rose to 86.8 from 85.9 (expected 85.5) and Consumer Confidence rose to 98.2 from 96.3 (expected 96.0).
  • Spain's Q4 GDP expanded 0.8% qtr/qtr (expected 0.6%; last 0.8%), growing 3.5% yr/yr (expected 3.2%; last 3.3%).
  • Swiss January ZEW Expectations improved to 17.7 from -20.0.
• Commodities:
  • WTI Crude: -0.6% to $73.33/bbl
  • Gold: UNCH at $2767.60/ozt
  • Copper: +0.2% to $4.255/lb
• Currencies:
  • EUR/USD: -0.3% to 1.0401
  • GBP/USD: -0.1% to 1.2424 
  • USD/CNH: UNCH at 7.2707
  • USD/JPY: -0.1% to 155.37
• Data out Today:
  • 7:00 ET: Weekly MBA Mortgage Index (actual -2.0%; 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%)