Bond Market Update

Inching Lower Ahead of FOMC

• U.S. Treasuries are on track for a modestly lower start after yesterday's session ended with yields in the belly of the curve at levels not seen since late August/early September. Treasury futures spent the first half of the night in a sideways range, slipping to lows after the focus turned to action in Europe. The selling precedes today's widely anticipated FOMC Statement at 14:00 ET, which is expected to call for a 25-basis point rate cut to the fed funds rate range. The overnight news and data flow included another deflationary CPI reading from China (-0.1% m/m), though the year-over-year growth rate accelerated to 0.7% from 0.2%. The U.S. session will feature the release of the Q3 Employment Cost Index (Briefing.com consensus 0.9%; prior 0.9%) at 8:30 ET. Crude oil is on the rise while the U.S. Dollar Index is down 0.1% at 99.16.
• Yield Check:
  • 2-yr: +1 bp to 3.62%
  • 3-yr: +1 bp to 3.66%
  • 5-yr: +2 bps to 3.70%
  • 10-yr: +1 bp to 4.20%
  • 30-yr: UNCH at 4.81%

• News:
  • The International Monetary Fund raised its 2025 growth forecast for China to 5.0% from 4.8% while the outlook for 2026 was increased to 4.5% from 4.2%.
  • The Chinese government will reportedly limit access to NVIDIA's H200 chips even though the Trump administration is removing restrictions on exports of those products.
  • Taiwan's exports jumped 56% yr/yr in November, representing the fastest increase in 15 years.
  • U.S. Trade Representative Greer said that the trade deal with Indonesia is at risk due to Indonesia backtracking on multiple commitments.
  • The Bank of France expects Q4 GDP to decelerate to 0.2% from 0.5% in Q3.
  • Germany's Chemical Industry Association saw a 1% drop in 2025 revenue with little hope for improvement in 2026.
  • China's November CPI was down 0.1% m/m (expected 0.2%; last 0.2%) but up 0.7% yr/yr, as expected (last 0.2%). November PPI was down 2.2% yr/yr (expected -2.0%; last -2.1%).
  • Japan's November PPI was up 0.3% m/m, as expected (last 0.5%), rising 2.7% yr/yr, as expected (last 2.7%). December Reuters Tankan Index fell to 10 from 17.
  • South Korea's November Unemployment Rate rose to 2.7% from 2.6%.
  • New Zealand's October Visitor Arrivals rose 0.6% m/m (last 2.9%) and External Migration and Visitors increased 9.4% yr/yr (last 9.6%).
  • Italy's October Industrial Production fell 1.0% m/m (expected -0.3%; last 2.7%), dropping 0.3% yr/yr (expected 0.2%; last 1.4%).
• Commodities:
  • WTI Crude: +0.5% to $58.56/bbl
  • Gold: -0.2% to $4226.70/ozt
  • Copper: +1.5% to $5.399/lb
• Currencies:
  • EUR/USD: +0.1% to 1.1638
  • GBP/USD: +0.1% to 1.3313
  • USD/CNH: UNCH at 7.0618
  • USD/JPY: -0.1% to 156.69
• Data out Today:
  • 7:00 ET: Weekly MBA Mortgage Index (actual 4.8%; prior -1.4%)
  • 8:30 ET: Q3 Employment Cost Index (Briefing.com consensus 0.9%; prior 0.9%)
  • 10:30 ET: Weekly crude oil inventories (prior 0.57 mln)
  • 14:00 ET: December FOMC Rate Decision (Briefing.com consensus 3.50-3.75%; prior 3.75-4.00%) and November Treasury Budget (Briefing.com consensus -$223.4 bln; prior -$284.0 bln)