Bond Market Update

Buyers Keep Order

• U.S. Treasuries had a solid outing Thursday as sellers largely kept to the sidelines. There was a little bit of selling pressure following this morning's data, which included an encouragingly low level of initial jobless claims (207,000) and a 2.3% Q4 GDP print that masked a remarkably strong 4.2% increase in personal spending (best since Q1 2023), yet buyers managed to hold things in check. Market participants were also digesting Fed Chair Powell's pronouncement yesterday that the Committee is not in a hurry to adjust the policy rate alongside some relatively weak GDP data out of the eurozone, and the ECB's decision today to cut its key policy rates by 25 basis points each. The 10-yr note yield settled roughly in the middle of the range established in the overnight futures trade and today's high in the cash session. The U.S. Dollar Index was down 0.2% to 107.78.
• Yield Check:
  • 2-yr: -3 bps to 4.20%
  • 3-yr: -3 bps to 4.24%
  • 5-yr: -5 bps to 4.31%
  • 10-yr: -4 bps to 4.52%
  • 30-yr: -3 bps to 4.76%

• News:
  • The ECB cut its key policy rates by 25 basis points, as expected.
  • A regional American Airlines flight with 64 people on board crashed with a military helicopter near Reagan International Airport in D.C.; no reports of survivors
  • Japan and the U.S. are making preparations for a leaders meeting on February 7.
  • Eurozone's flash Q4 GDP was unchanged qtr/qtr (expected 0.1%; last 0.4%), rising 0.9% yr/yr (expected 1.0%; last 0.9%). January Business and Consumer Survey hit 95.2 (expected 94.1; last 93.7). December Unemployment Rate rose to 6.3% from 6.2%, as expected.
  • Germany's flash Q4 GDP contracted 0.2% qtr/qtr (expected -0.1%; last 0.1%), falling 0.2% yr/yr (expected 0.0%; last -0.3%). December Import Price Index was up 0.4% m/m (expected 0.5%; last 0.9%), rising 2.0% yr/yr (expected 1.9%; last 0.6%).
  • U.K.'s December BoE Consumer Credit reached GBP1.045 bln (expected GBP950 mln; last GBP905 mln). December Mortgage Approvals hit 66,530 (expected 65,000; last 66,060) and Mortgage Lending reached GBP3.57 bln (expected GBP2.60 bln; last GBP2.55 bln).
  • France's flash Q4 GDP contracted 0.1% qtr/qtr (expected 0.0%; last 0.4%) but was up 0.7% yr/yr (last 1.2%). December Consumer Spending was up 0.7% m/m (expected 0.1%; last 0.2%).
  • Italy's flash Q4 GDP was unchanged qtr/qtr (expected 0.1%; last 0.0%), rising 0.5% yr/yr (expected 0.6%; last 0.4%). December Unemployment Rate rose to 6.2% from 5.9% (expected 5.7%).
  • Spain's January CPI was up 0.2% m/m (expected 0.0%; last 0.5%), rising 3.0% yr/yr (expected 2.9%; last 2.8%). January Core CPI was up 2.4% yr/yr (last 2.6%). January Business Confidence fell to -5.1 from -4.5.
• Today's Data:
  • The Advance Q4 GDP report showed real GDP decelerating to a seasonally adjusted annual rate of 2.3% (Briefing.com consensus 2.3%) versus 3.1% in the third quarter. The GDP Price deflator increased to 2.2% (Briefing.com consensus 2.4%) from 1.9% in the third quarter.
    • The key takeaway from the report is that there were stronger growth attributes in the fourth quarter than the headline number suggests. To that end, personal consumption expenditures were up 4.2% -- the strongest since Q1 2023 -- and real final sales of domestic product, which excludes the change in private inventories, was up 3.2%.
  • Initial jobless claims for the week ending January 25 decreased by 16,000 to 207,000 (Briefing.com consensus 221,000) while continuing jobless claims for the week ending January 18 decreased by 42,000 to 1.858 million.
    • The key takeaway from the report is the low level of initial jobless claims -- a leading indicator -- which is a good signal for growth prospects, as it conveys a reluctance on the part of employers to let employees go.
  • December Pending Home Sales -5.5% vs. 0.8% Briefing.com consensus; prior revised to 1.6% from 2.2%
  • Weekly EIA Natural Gas Inventories showed a draw of 321 bcf vs a draw of 223 bcf last week
• Commodities:
  • WTI Crude: +0.1% to $72.74/bbl
  • Gold: +2.7% to $2844.60/ozt
  • Copper: +0.7% to $4.31/lb
• Currencies:
  • EUR/USD: +0.1% to 1.0427
  • GBP/USD: +0.1% to 1.2456
  • USD/CNH: +0.1% to 7.2713
  • USD/JPY: -0.7% to 154.14
• The Day Ahead:
  • 08:30 ET: December Personal Income (Briefing.com consensus 0.4%; prior 0.3%)
  • 08:30 ET: December Personal Spending (Briefing.com consensus 0.5%; prior 0.4%)
  • 08:30 ET: December PCE Price Index (Briefing.com consensus 0.3%; prior 0.1%)
  • 08:30 ET: December Core-PCE Price Index (Briefing.com consensus 0.2%; prior 0.1%)
  • 08:30 ET: Q4 Employment Cost Index (Briefing.com consensus 0.9%; prior 0.8%)
  • 09:45 ET: January Chicago PMI (Briefing.com consensus 41.5; prior 36.9)