Bond Market Update

Feeling Different

U.S. Treasuries saw some overnight buying interest once again, spurred on presumably by foreign investors pursuing interest rate differential trades. China's government bond yields fell to fresh record lows (10-yr at 1.598%) amid ongoing concerns about weak consumption in China. Officials there are talking up the prospect of additional stimulus, but so far that has not translated into stronger aggregate demand from Chinese consumers. Separately, the spread between the 10-yr note yield and the 10-yr German bund is 215 basis points. Market participants are waiting on the December ISM Manufacturing PMI at 10:00 a.m. ET and are keeping a close eye on the dollar's standing versus other major currencies. Yesterday, the U.S. Dollar Index hit its highest level since September 2022 as the euro and the British pound experienced sharp selling. Both have rebounded modestly today against the greenback. The U.S. Dollar Index is down 0.4% to 108.96.

• Yield Check:
  • 2-yr: -2 bps to 4.23%
  • 3-yr: -2 bps to 4.26%
  • 5-yr: -3 bps to 4.35%
  • 10-yr: -4 bps to 4.54%
  • 30-yr: -4 bps to 4.76%
• News:
  • House will hold Speaker election today. Rep. Mike Johnson does not have enough votes yet, but holdouts are indicating support, according to Politico
  • The PBOC said it will cut the 7-day reverse repo rate (currently 1.50%) "at an appropriate time" in 2025, according to FT
  • Treasury Department and Federal Housing Finance Agency amend preferred stock purchase agreements for Fannie Mae (FNMA) and Freddie Mac (FMCC)
  • China's NDRC plans to increase its issuance of ultra long bonds to subsidize a consumer trade-in program, which will include smartphones, in a bid to boost consumption
  • China added 28 U.S. companies, including Boeing Defense Space and Security, to its export control list
  • Chinese government bond yields fall to new record lows
  • Bloomberg reports that President Biden will announce his decision today to block Nippon Steel's acquisition of U.S. Steel
  • Germany's unemployment change was less than expected in December and its unemployment rate held steady at 6.1%
  • South Korea's acting President Choi vows "swift and bold" support measures for the market if volatility increases
  • South Korean officials tried to arrest President Yoon at the presidential compound, but failed after a multi-hour standoff with security forces there
• Commodities:
  • WTI crude: -0.1% to $73.02/bbl
  • Gold: flat at $2669.50/ozt
  • Copper: +0.2% to $4.03/lb
• Currencies:
  • EUR/USD: +0.3% to 1.0295
  • GBP/USD: +0.2% to 1.2407
  • USD/CNH: +0.2% to 7.3517
  • USD/JPY: -0.2% to 157.10
• The Day Ahead:
  • 10:00 ET: December ISM Manufacturing Index (Briefing.com consensus 48.5%; prior 48.4%)
  • 10:30 ET: EIA Natural Gas Inventories (prior -93 bcf)