Bond Market Update

Inching Higher Ahead of December Jobs Report

• U.S. Treasuries finished Thursday's abbreviated session on a mostly higher note after intraday action saw some backtracking from highs in longer tenors while the short end held onto the bulk of its opening advance. The trading day, which was expected to be slow due to the equity market's closure in honor of President Carter's memorial, started with gains across the curve that pressured yields on longer tenors from multi-month highs. The early strength followed a night that saw rising expectations for more rate hikes from the Bank of Japan and continued worries about the U.K.'s fiscal situation. Treasuries ranged near their starting levels for the better part of the session, but the 5-yr note and longer tenors backpedaled around noon, giving back the bulk of their opening gains. The market did not receive any economic data today, but tomorrow will bring the Employment Situation report for December (Briefing.com consensus 154,000; prior 227,000), which will play into rate cut expectations for May. The fed funds futures market ended the day pointing to a 50.4% implied likelihood of a May cut, down slightly from 51.3% that was seen on Wednesday. A couple of Fed officials made comments today, starting with Philadelphia Fed President (non-voter) Harker saying that a pause in rate cuts is appropriate given high uncertainty, adding that it is not clear what the longer-run path of the fed funds rate range looks like. Later in the day, Fed Governor Bowman (FOMC voter) said that she could have supported no action at the December FOMC meeting and that she believes a rate cut was the last in the recalibration phase. Crude oil reclaimed the bulk of its loss from Wednesday while the U.S. Dollar Index edged up 0.1% to 109.16.
• Yield Check:
  • 2-yr: -2 bps to 4.27%
  • 3-yr: -2 bps to 4.34%
  • 5-yr: -1 bp to 4.46%
  • 10-yr: UNCH at 4.69%
  • 30-yr: UNCH at 4.93%

• News:
  • Reuters reported, citing Halle Institute for Economic Research, that corporate insolvencies in Germany in Q4 reached the highest level since mid-2009.
  • British retailers Marks and Spencer, Greggs, and Tesco reported underwhelming results for the holiday shopping period.
  • European Central Bank policymaker Villeroy de Galhau said that the slight increase in December CPI is not indicative of a loss of disinflationary momentum.
  • The Biden administration is reportedly planning additional restrictions on chip exports to China.
  • China's Ministry of Commerce concluded that the EU's foreign subsidies law is equivalent to a barrier on trade and investment.
  • China's December CPI was unchanged m/m, as expected (last -0.6%), inching up 0.1% yr/yr, as expected (last 0.2%). December PPI was down 2.3% yr/yr (expected -2.4%; last -2.5%).
  • Japan's November Average Cash Earnings rose 3.0% yr/yr (expected 2.7%; last 2.2%) and November Overall Wage Income also increased 3.0% (last 2.2%).
  • Australia's November Retail Sales were up 0.8% m/m (expected 1.0%; last 0.5%). November trade surplus reached AUD7.079 bln (expected surplus of AUD5.62 bln; last surplus of AUD5.67 bln) as imports grew 1.7% m/m (last -0.1%) and exports rose 4.8% m/m (last 3.5%).
  • Eurozone's November Retail Sales were up 0.1% m/m (expected 0.3%; last -0.3%), rising 1.2% yr/yr (last 2.1%).
  • Germany's November Industrial Production was up 1.5% m/m (expected 0.5%; last -0.4%) but down 2.9% yr/yr (last -4.2%). November trade surplus reached EUR19.7 bln (expected surplus of EUR14.7 bln; last surplus of EUR13.4 bln) as imports fell 3.3% m/m (expected 0.7%; last -0.3%) and exports rose 2.1% m/m (expected 2.0%; last -2.9%).
  • Spain's December Business Confidence ticked up to -4.6 from -5.1.
• Commodities:
  • WTI crude: +0.9% to $74.00/bbl
  • Gold: +0.7% to $2691.50/ozt
  • Copper: +0.9% to $4.31/lb
• Currencies:
  • EUR/USD: -0.2% to 1.0301
  • GBP/USD: -0.4% to 1.2308
  • USD/CNH: +0.1% to 7.3564
  • USD/JPY: -0.2% to 158.07
• The Day Ahead: 
  • 8:30 ET: December Nonfarm Payrolls (Briefing.com consensus 154,000; prior 227,000), Nonfarm Private Payrolls (Briefing.com consensus 140,000; prior 194,000), Average Hourly Earnings (Briefing.com consensus 0.3%; prior 0.4%), Unemployment Rate (Briefing.com consensus 4.2%; prior 4.2%), and Average Workweek (Briefing.com consensus 34.3; prior 34.3)
  • 10:00 ET: Preliminary January University of Michigan Consumer Sentiment (Briefing.com consensus 73.5; prior 74.0)