Bond Market Update

Seesaw Action

U.S. Treasuries had a seesaw session with relative strength at the front of the curve and relative weakness at the back end of the curve in a steepening move that saw the 2s10s spread widen to 34 basis points from 32 basis points at Friday's settlement. Yields vacillated around a cadre of news that included final Services PMI readings for December out of China, Europe, and the U.S. that were better than expected, reports that a reconciliation package of key legislative initiatives, which would include an extension of the 2017 tax cuts could possibly be passed by the end of April, and a Washington Post report that suggested proposed tariff actions might not be as extensive as some have feared. President-elect Trump ultimately refuted that report, saying it was wrong to suggest his tariff policy would be pared back. The dollar, which had been down sharply on the initial report, pared its losses against other major currencies after President-elect Trump refuted the reporting. A relatively soft 3-yr note auction at 1:00 p.m. ET, which saw the high yield of 4.332% tail the when-issued yield by 1.2 basis points, squelched any aspirations of a strong recovery bid in the Treasury market. The U.S. Dollar Index was down 0.6% to 108.25.

• Yield Check:
  • 2-yr: -1 bp to 4.27%
  • 3-yr: -1 bp to 4.31%
  • 5-yr: +1 bp to 4.42%
  • 10-yr: +1 bp to 4.61%
  • 30-yr: +3 bps to 4.83%
• News:
  • Congress certifies 2024 election results, with no congressional member challenging the results; Donald Trump will be inaugurated as the 47th President on January 20
  • 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; President-elect Trump denies Washington Post story that tariffs will be pared back
  • 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)
• Today's data:
  • Factory orders decreased 0.4% month-over-month in November (Briefing.com consensus -0.3%) following an upwardly revised 0.5% increase (from 0.2%) in October. Excluding transportation, factory orders rose 0.2% on the heels of a 0.2% increase in October. Shipments of manufactured goods edged 0.1% higher in November following a 0.2% decline in October.
    • The key takeaway from the report is that the weakness in factory orders was concentrated in the volatile transportation equipment space; otherwise, there was a modest pickup in order activity.
  • December S&P Global US Services PMI 56.8 (prior 58.5) versus final reading of 56.1 for November. The dividing line between expansion and contraction is 50.0, and although the final December reading was revised down from the preliminary reading of 58.5, the final reading for December was above the final reading for November, indicating that the pace of expansion accelerated versus the prior month.
• Commodities:
  • WTI crude: -0.4% to $73.63/bbl
  • Gold: -0.3% to $2647.80/ozt
  • Copper: +2.2% to $4.16/lb
• Currencies:
  • EUR/USD: +0.8% to 1.0390
  • GBP/USD: +0.8% to 1.2516
  • USD/CNH: -0.1% to 7.3478
  • USD/JPY: +0.2% to 157.50
• The Day Ahead:
  • 08:30 ET: November Trade Balance (Briefing.com consensus -$77.9B; prior -$73.8B)
  • 10:00 ET: December ISM Services PMI (Briefing.com consensus 53.0%; prior 52.1%)
  • 10:00 ET November JOLTS - Job Openings (prior 7.744M)
  • 13:00 ET: $39 billion 10-yr note reopening