Bond Market Update

Lower Start Looms

• U.S. Treasuries are on track for a lower start that is expected to push the 10-yr yield back to its December high after the 30-yr yield inched above the December high of its own on Monday. Overnight action saw an early advance in the futures market that gave way to some selling as the focus turned to action in Europe. Economic/political tensions between China and the U.S. are on the rise after the U.S. added technology company Tencent and battery maker CATL to a list of entities cooperating with the Chinese military. In Europe, rising grocery inflation in the U.K. lifted yields on the U.K.'s 30- and 50- year gilts to levels not seen in nearly 30 years. The U.S. session will feature the release of the December ISM Services report (Briefing.com consensus 53.0%; prior 52.1%) and November Job Openings (prior 7.744 mln) at 10:00 ET, preceded by November Trade Balance (Briefing.com consensus -$77.9 bln; prior -$73.8 bln) at 8:30 ET. Later in the day, the U.S. Treasury will sell $39 bln in 10-yr notes. Crude oil is reclaiming its loss from Monday while the U.S. Dollar Index is little changed at 108.25.
• Yield Check:
  • 2-yr: UNCH at 4.27%
  • 3-yr: +3 bps to 4.24%
  • 5-yr: +1 bp to 4.43%
  • 10-yr: +1 bp to 4.63%
  • 30-yr: +1 bp to 4.85%

• News:
  • Chinese officials are expected to announce a trade-in program for consumer goods on Wednesday to boost demand.
  • Japan's Finance Minister Kato spoke again about the foreign exchange market, saying that one-sided and sudden moves are being seen.
  • The EU Council expects that the National Recovery and Resilience Plan will increase Italy's GDP by 1.4 percentage points by the end of 2026.
  • Grocery inflation in the U.K. accelerated to 3.7% in December, according to a survey conducted by Kantar.
  • Eurozone's Flash December CPI was up 0.4% m/m (last -0.3%), rising 2.4% yr/yr, as expected (last 2.2%). Flash December Core CPI was up 0.5% m/m (last -0.6%), rising 2.7% yr/yr, as expected (last 2.7%). November Unemployment Rate remained at 6.3%, as expected.
  • U.K.'s December Halifax House Price Index was down 0.2% m/m (expected 0.8%; last 1.2%) but up 3.3% yr/yr (last 4.7%).
  • France's December CPI was up 0.2% m/m (expected 0.3%; last -0.1%), rising 1.3% yr/yr (expected 1.5%; last 1.3%).
  • Italy's flash December CPI was up 0.1% m/m (expected 0.3%; last -0.1%), rising 1.3% yr/yr (expected 1.5%; last 1.3%). November Unemployment Rate dipped to 5.7% from 5.8% (expected 5.8%).
  • Swiss December CPI was down 0.1% m/m (expected -0.1%; last -0.1%) but up 0.6% yr/yr, as expected (last 0.7%).
• Commodities:
  • WTI Crude: +0.6% to $74.00/bbl
  • Gold: +0.6% to $2663.80/ozt
  • Copper: +0.6% to $4.186/lb
• Currencies:
  • EUR/USD: +0.1% to 1.0394
  • GBP/USD: +0.2% to 1.2537
  • USD/CNH: -0.1% to 7.3382
  • USD/JPY: +0.1% to 157.65
• Data out Today:
  • 8:30 ET: November Trade Balance (Briefing.com consensus -$77.9 bln; prior -$73.8 bln)
  • 10:00 ET: December ISM Services (Briefing.com consensus 53.0%; prior 52.1%) and November Job Openings (prior 7.744 mln)
• Treasury Auctions:
  • 13:00 ET: $39 bln 10-yr Treasury note auction results