Bond Market Update

Trimming Recent Gains

• U.S. Treasuries are on track for a lower start after two days of gains across the curve. Treasury futures spent the night in a steady retreat that saw a brief bounce near the start of the European session, as the market received a much cooler-than-expected CPI report from the U.K. The report showed a deceleration in the year-over-year CPI growth rate to 3.2% from 3.6%, which boosted cumulative rate cut expectations for next year. The overnight data slate also included an in-line final November CPI report for the eurozone, but the U.S. session will not include any top-tier data. Crude oil is bouncing off its lowest level of the year after President Trump said that oil cargo traffic to and from Venezuela is being blocked. The U.S. Dollar Index is up 0.4% at 98.56, rising from its lowest level since early October.
• Yield Check:
  • 2-yr: +3 bps to 3.51%
  • 3-yr: +3 bps to 3.55%
  • 5-yr: +3 bps to 3.72%
  • 10-yr: +3 bps to 4.18%
  • 30-yr: +3 bps to 4.85%

• News:
  • President Trump will address the nation at 21:00 ET.
  • The Bank of Thailand cut its policy rate by 25 basis points to 1.25%.
  • The Japanese government is reportedly considering a 20% tax deduction for startup investments.
  • Japan's Prime Minister Takaichi said that capacity needs to be strengthened with proactive fiscal policy.
  • China's government called for proactive fiscal policy in 2026.
  • The Trump administration is reportedly looking for ways to retaliate against the EU's digital tax.
  • Japan's October Core Machinery Orders were up 7.0% m/m (expected -1.8%; last 4.2%), rising 12.5% yr/yr (expected 3.6%; last 11.6%). November trade surplus reached JPY322.2 bln (expected surplus of JPY71.2 bln; last deficit of JPY226.1 bln) as exports rose 6.1% yr/yr (expected 4.8%; last 3.6%) and imports increased 1.3% yr/yr (expected 2.5%; last 0.7%).
  • Singapore's November trade surplus reached SGD7.669 bln (last surplus of SGD7.168 bln) as Non-Oil Exports rose 6.6% m/m (last 8.8%), increasing 11.6% yr/yr (last 21.7%).
  • Australia's November MI Leading Index was unchanged m/m (last 0.1%).
  • New Zealand's Q3 Current Account deficit reached NZD8.37 bln (expected deficit of NZD7.62 bln; last deficit of NZD1.30 bln). 
  • Eurozone's November CPI was down 0.3% m/m, as expected (last 0.2%), rising 2.1% yr/yr (expected 2.2%; last 2.2%). November Core CPI was down 0.5% m/m, as expected (last -0.5%) but up 2.4% yr/yr, as expected (last 2.4%). Q3 Labor Cost Index rose 3.3% yr/yr (expected 3.5%; last 3.9%).
  • Germany's December ifo Business Climate fell to 87.6 from 88.0 (expected 88.2). December Current Assessment remained at 85.6 (expected 85.7) and Business Expectations dipped to 89.7 from 90.5 (expected 90.5).
  • U.K.'s December CBI Industrial Trends Orders rose to -32 from -37 (expected -35). November CPI was down 0.2% m/m (expected 0.0%; last 0.4%) but up 3.2% yr/yr (expected 3.5%; last 3.6%). November Core CPI was up 3.2% yr/yr (expected 3.4%; last 3.4%). November Input PPI was up 0.3% m/m (expected 0.2%; last 0.0%) and Output PPI was up 0.1% m/m, as expected (last 0.1%). November Inflation Expectations slowed to 3.2% from 3.6% (expected 3.5%).
• Commodities:
  • WTI Crude: +1.8% to $56.28/bbl
  • Gold: +0.3% to $4346.90/ozt
  • Copper: +1.0% to $5.412/lb
• Currencies:
  • EUR/USD: -0.2% to 1.1719
  • GBP/USD: -0.6% to 1.3343
  • USD/CNH: +0.1% to 7.0382
  • USD/JPY: +0.5% to 155.48
• Data out Today:
  • 7:00 ET: Weekly MBA Mortgage Index (actual -3.8%; prior 4.8%)
  • 10:30 ET: Weekly crude oil inventories (prior -1.81 mln)