Bond Market Update

Tide Turns

U.S. Treasuries have largely recovered from some overnight weakness that saw the 10-yr note yield hit 4.63%. The reversal is striking in that it has followed better-than-expected Services PMI readings out of China and Europe, a push by President-elect Trump to pass a large reconciliation bill that will include an extension of the 2017 tax cuts, reports that Trump aides are looking into a "universal tariff" on critical imports, and an early indication for a strong open for stocks that will be led by semiconductor and mega-cap shares. In other words, the move down in yields is counter-intuitive to the prevailing headlines that also include some sharp weakness in the dollar and an impending $58 billion 3-yr note auction at 1:00 p.m. ET. The U.S. Dollar Index -0.8% to 108.06.

• Yield Check:
  • 2-yr: -3 bps to 4.25%
  • 3-yr: -3 bps to 4.29%
  • 5-yr: -2 bps to 4.39%
  • 10-yr: -2 bps to 4.58%
  • 30-yr: +1 bp to 4.81%
• News:
  • President-elect Trump tells House Speaker Mike Johnson that he wants Congress to pass one large reconciliation bill instead of separate bills that includes tax cuts, energy policy, border security, debt ceiling increase, and spending cuts (reconciliation bills can pass Senate with 51 votes). Mr. Johnson says his goal is to have that bill become law by the end of April, according to Politico
  • President-elect Trump planning universal country tariffs, but only on critical imports instead of on all products, according to Washington Post
  • The Biden administration wants DOJ to reject President-elect Trump's request to delay TikTok ban, according to Bloomberg
  • President Biden takes action to protect the entire U.S. East coast, the eastern Gulf of Mexico, the Pacific off the coasts of Washington, Oregon, and California, and additional portions of the Northern Bering Sea in Alaska from future oil and natural gas leasing
  • Senate Majority Leader John Thune tells President-elect Trump that Pete Hegseth will be confirmed as Secretary of Defense, according to CBS News
  • Final Services PMI readings for December for European countries were better than expected
  • BOJ Governor Ueda reiterated that rates will increase if the economy continues to improve
  • Canadian Prime Minister Justin Trudeau will likely soon announce his resignation, according to Reuters
  • Japan's 10-yr government bond yield hit its highest level (1.12%) since July 2011
  • Nippon Steel and U. S. Steel confirm multiple lawsuits in response to wrongful interference with the proposed acquisition of U.S. Steel
  • China's December Caixin Services PMI 52.2 (expected 51.7; last 51.5)
• Commodities:
  • WTI crude: +0.6% to $74.40/bbl
  • Gold: +0.2% to $2659.50/ozt
  • Copper: +2.3% to $4.17/lb
• Currencies:
  • EUR/USD: +1.0% to 1.0407
  • GBP/USD: +1.0% to 1.2538
  • USD/CNH: -0.4% to 7.3248
  • USD/JPY: -0.3% to 156.73
• The Day Ahead:
  • 09:45 ET: Final December S&P Global US Services PMI (prior 58.5)
  • 10:00 ET: November Factory Orders (Briefing.com consensus -0.3%; prior 0.2%)
  • 13:00 ET: $58 billion 3-yr note auction