Bond Market Update

Early Pressure Resisted

• U.S. Treasuries ended a subdued Wednesday session with slim losses across the curve. Treasuries appeared on track to give back a sizable portion of their gains from the past two days at the start of the cash session, but the market showed resilience, resisting the early weakness. The lower star had yields on all tenors trading about three basis points above yesterday's closing levels even though the night featured a much cooler than expected November CPI report from the U.K., which boosted the market's cumulative expectations for 2026 rate cuts from the Bank of England. The lower start was followed by a morning bounce that briefly lifted 10s and 30s into positive territory, but renewed pressure in the late morning returned action to levels seen at the open. However, the market remained resilient with the 2-yr note clawing its way to a fresh session high amid a weak showing in equities while longer tenors followed reluctantly, leaving the complex with just a small portion of its starting losses. The U.S. Treasury held a $13 bln 20-yr bond reopening this afternoon, but the market's reaction was muted since the sale went well. Crude oil bounced off its lowest level of the year after President Trump, who will address the nation tonight at 21:00 ET, ordered a naval blockade of sanctioned oil tanker traffic to and from Venezuela. The U.S. Dollar Index rose 0.2% to 98.36, edging up from its lowest level since early October.
• Yield Check:
  • 2-yr: +1 bp to 3.49%
  • 3-yr: +1 bp to 3.53%
  • 5-yr: UNCH at 3.70%
  • 10-yr: UNCH at 4.15%
  • 30-yr: UNCH at 4.83%

• News:
  • 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%).
• Today's Data:
  • The weekly MBA Mortgage Index fell 3.8% to follow last week's 4.8% increase. The Purchase Index was down 2.8% while the Refinance Index fell 3.6%.
  • Weekly crude oil inventories decreased by 1.27 mln barrels after decreasing by 1.81 mln barrels a week ago.
  • $13 bln 20-year Treasury bond reopening results (prior 12-auction average):
    • High yield: 4.798% (4.790%).
    • Bid-to-cover: 2.67 (2.62).
    • Indirect bid: 65.2% (65.5%).
    • Direct bid: 22.2% (21.7%).
• Commodities:
  • WTI crude: +0.9% to $55.80/bbl
  • Gold: +1.0% to $4373.60/ozt
  • Copper: +1.5% to $5.44/lb
• Currencies:
  • EUR/USD: UNCH at 1.1743
  • GBP/USD: -0.3% to 1.3376
  • USD/CNH: +0.1% to 7.0417
  • USD/JPY: +0.6% to 155.64
• The Day Ahead:
  • 8:30 ET: November CPI (Briefing.com consensus 0.3%; prior NA), Core CPI (Briefing.com consensus 0.3%; prior NA), weekly Initial Claims (Briefing.com consensus 229,000; prior 236,000), and Continuing Claims (prior 1.383 mln), and December Philadelphia Fed survey (Briefing.com consensus 2.9; prior -1.7)
  • 10:30 ET: Weekly natural gas inventories (prior -177 bcf)
  • 16:00 ET: October Net Long-Term TIC Flows (prior NA)