Bond Market Update

Long End Remains Pressured

• U.S. Treasuries are on track for a lower start with longer tenors set for an early continuation of yesterday's underperformance. Treasury futures spent the Asian session in a sideways range, falling to lows once the focus turned to action in Europe, where the market is expressing growing worries about potential stagflation in the U.K. following yesterday's news of accelerating grocery inflation. This has driven the British pound to its lowest level against the dollar in nearly 14 months while Gilt yields have risen with the 10-yr yield (4.858%) nearing its high from 2023 (4.905%). A continuation of this dynamic would force the British government to raise taxes or cut spending. Earlier in the night, HSBC lowered its forecast for China's 10-yr yield from 1.80% to 1.20%, roughly 40 basis points below the current level. Domestically, CNN reported that President-elect Trump may declare a national economic emergency to have full authority to impose tariffs. The U.S. session will see the release of weekly Initial Claims (Briefing.com consensus 218,000; prior 211,000) and Continuing Claims (prior 1.844 mln) at 8:30 ET due to tomorrow's equity market closure for former President Carter's funeral. However, the Treasury market will be open until 14:00 ET. Crude oil is inching toward its 200-day moving average (75.57) while the U.S. Dollar Index is up 0.6% at 109.18.
• Yield Check:
  • 2-yr: UNCH at 4.30%
  • 3-yr: +2 bps to 4.38%
  • 5-yr: +2 bps to 4.49%
  • 10-yr: +4 bps to 4.72%
  • 30-yr: +5 bps to 4.96%

• News:
  • Chinese officials announced an expansion of a trade-in program to entice increased spending from households, but the announcement was deemed a disappointment.
  • Shanghai Securities News speculated about forceful monetary policy moves being on the horizon.
  • Former Bank of Japan Governor Kuroda said that more rate hikes will be made in the coming years.
  • Japan's Fast Retailing announced higher wages for new hires and current full-time workers.
  • Japan's December Household Confidence fell to 36.2 from 36.4 (expected 36.6).
  • South Korea's November Current Account surplus hit $9.30 bln (last $9.78 bln).
  • Australia's November CPI Indicator was up 2.30% yr/yr (expected 2.20%; last 2.10%).
  • Eurozone's December Business and Consumer Survey fell to 93.7 from 95.6 (expected 95.6). November PPI was up 1.6% m/m (expected 1.5%; last 0.4%) but down 1.2% yr/yr (expected -1.3%; last -3.3%).
  • Germany's November Retail Sales fell 0.6% m/m (expected 0.5%; last -0.3%) but were up 2.5% yr/yr (expected 1.9%; last 5.1%). November Factory Orders fell 5.4% m/m (expected -0.3%; last -1.5%).
  • France's December Consumer Confidence fell to 89 from 90, as expected. November trade deficit reached EUR7.1 bln (expected deficit of EUR7.0 bln; last deficit of EUR7.5 bln). November Current Account deficit reached EUR1.7 bln (last deficit of EUR1.9 bln).
• Commodities:
  • WTI Crude: +0.8% to $74.87/bbl
  • Gold: -0.1% to $2664.30/ozt
  • Copper: -0.3% to $4.184/lb
• Currencies:
  • EUR/USD: -0.6% to 1.0283
  • GBP/USD: -1.1% to 1.2339
  • USD/CNH: +0.3% to 7.3577
  • USD/JPY: +0.3% to 158.45
• Data out Today:
  • 7:00 ET: Weekly MBA Mortgage Index (actual -3.7%; prior -21.9%)
  • 8:15 ET: December ADP Employment Change (Briefing.com consensus 131,000; prior 146,000)
  • 8:30 ET: Weekly Initial Claims (Briefing.com consensus 218,000; prior 211,000) and Continuing Claims (prior 1.844 mln)
  • 10:00 ET: November Wholesale Inventories (Briefing.com consensus -0.2%; prior 0.2%)
  • 10:30 ET: Weekly crude oil inventories (prior -1.18 mln)
  • 12:00 ET: Weekly natural gas inventories (prior -116 bcf)
  • 14:00 ET: December FOMC Minutes
  • 15:00 ET: November Consumer Credit (Briefing.com consensus $9.1 bln; prior $19.2 bln)
• Treasury Auctions:
  • 13:00 ET: $22 bln 30-yr Treasury bond reopening results