Bond Market Update

Short End Inches Lower as FOMC Holds

• U.S. Treasuries ended Wednesday on a slightly lower note after a slow retreat from their morning highs. The trading day began with modest gains across the curve after another night of reduced volume in Asia due to the Lunar New Year. Treasuries defended their morning gains through the release of a batch of economic data that prompted the Atlanta Fed to lower its GDPNow forecast for Q4 GDP to 2.3% from 3.2%. Late morning saw some backtracking, which accelerated after the FOMC released its January policy statement. The statement did not call for any changes to the fed funds rate range, which was expected. Policymakers lauded the strength of the labor market and removed a reference about inflation making progress toward the goal, but Fed Chairman Powell said during his press conference that the change in language should not be overanalyzed. That said, he also noted that the central bank does not need to hurry to adjust the policy stance. Treasuries climbed off their lows during the last few minutes of action with the complex finishing essentially where it was before the statement crossed the wires. Crude oil fell back toward its 50-day moving average (71.96) while the U.S. Dollar Index rose 0.1% to 107.95.
• Yield Check:
  • 2-yr: +2 bps to 4.23%
  • 3-yr: +1 bp to 4.27%
  • 5-yr: +1 bp to 4.36%
  • 10-yr: UNCH at 4.56%
  • 30-yr: UNCH at 4.79%

• News:
  • The Bank of Canada lowered its policy rate by 25 basis points to 3.00% and announced the end of its quantitative tightening program.
  • 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 that displeased the Socialist party.
  • 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.
  • 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.
• Today's Data:
  • The weekly MBA Mortgage Index fell 2.0% after inching up 0.1% a week ago. The Refinance Index was down 6.8% and the Purchase Index was down 0.4%.
  • The advance goods trade deficit widened to $122.1 bln in December from a revised $103.5 bln (from -$102.9 bln) in November.
  • Advance Retail Inventories were down 0.3% in December after a revised unchanged reading (from 0.3%) in November.
  • Advance Wholesale Inventories were down 0.5% in December after a revised 0.1% decrease (from -0.2%) in November.
  • Weekly crude oil inventories increased by 3.46 mln barrels after decreasing by 1.02 mln barrels a week ago.
• Commodities:
  • WTI crude: -1.5% to $72.64/bbl
  • Gold: UNCH at $2769.70/ozt
  • Copper: +0.7% to $4.28/lb
• Currencies:
  • EUR/USD: -0.1% to 1.0416
  • GBP/USD: UNCH at 1.2445
  • USD/CNH: -0.1% to 7.2643
  • USD/JPY: -0.2% to 155.21
• The Day Ahead:
  • 8:30 ET: 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)
  • 10:00 ET: December Pending Home Sales (Briefing.com consensus 0.8%; prior 2.2%)
  • 10:30 ET: Weekly natural gas inventories (prior -223 bcf)