Bond Market Update

Recent Gains Trimmed Amid BoJ Hike

• U.S. Treasuries ended Friday with a small dip from their best levels of the week. Intraday action was largely uneventful with the market bouncing inside a narrow sideways range after a lower start. The opening retreat followed a long-awaited rate hike from the Bank of Japan, though BoJ Governor Ueda's comments kept the market's expectations for the next rate hike in check. Treasuries followed their lower start with about an hour of sideways trade before staging a rebound that briefly lifted the 2-yr note back to little changed. However, there was no follow-through appetite, resulting in a slow return to the day's starting levels. Even with today's selling, Treasuries recorded solid gains for the week, leading into the Christmas week, which is likely to see reduced overall volume. Crude oil climbed today but still lost nearly $1/bbl for the week, while the U.S. Dollar Index rose 0.2% to 98.61, adding 0.2% for the week.
• Yield Check:
  • 2-yr: +3 bps to 3.49%
  • 3-yr: +3 bps to 3.53%
  • 5-yr: +3 bps to 3.69%
  • 10-yr: +4 bps to 4.15%
  • 30-yr: +3 bps to 4.83%

• News:
  • New York Fed President (FOMC voter) Williams said that he has no sense of urgency to change the fed funds rate range but also acknowledged that rates will eventually be lower.
  • Chinese press speculated that the People's Bank of China is preparing to lower its reserve requirement ratio in January.
  • Fitch affirmed New Zealand's AA+ rating, observing that gradual recovery has hampered fiscal consolidation.
  • The EU agreed to provide an EUR90 bln loan to Ukraine but could not agree on spending frozen Russian assets.
  • European Central Bank officials appear comfortable with the current level of rates while Goldman Sachs expects the Bank of England to cut its bank rate three times in 2026.
  • China's November FDI was down 7.5% YTD (last -10.3%).
  • Japan's November National CPI was up 0.4% m/m (last 0.4%), rising 2.9% yr/yr (last 3.0%). National Core CPI was up 3.0% yr/yr, as expected (last 3.0%).
  • South Korea's November PPI rose 0.3% m/m (last 0.2%), increasing 1.9% yr/yr (last 1.5%).
  • Australia's November Private Sector Credit rose 0.6% m/m, as expected (last 0.7%) and Housing Credit also rose 0.6% m/m (last 0.6%). November Commodity Prices were down 3.8% yr/yr (last -1.7%).
  • New Zealand's November trade deficit reached NZD163 mln (expected deficit of NZD1.175 bln; last deficit of NZD1.598 bln). November Credit Card Spending was up 4.7% yr/yr (last 1.6%) and December ANZ Business Confidence rose to 73.6 from 67.1.
  • Eurozone's October Current Account surplus reached EUR25.7 bln (expected surplus of EUR16.0 bln; last surplus of EUR23.1 bln).
  • Germany's November PPI was unchanged m/m (expected 0.1%; last 0.1%), falling 2.3% yr/yr (expected -2.2%; last -1.8%). January GfK Consumer Climate fell to -26.9 from -23.4 (expected -23.0). 
  • U.K.'s November Retail Sales dipped 0.1% m/m (expected 0.3%; last -0.9%) but were up 0.6% yr/yr (expected 1.6%; last 0.6%). November Core Retail Sales dipped 0.2% m/m (expected 0.2%; last -0.8%) but were up 1.2% yr/yr (expected 1.6%; last 1.6%). November Public Sector Net Borrowing was down GBP11.65 bln (expected -GBP10.20 bln; last -GBP21.19 bln). December CBI Distributive Trades Survey fell to -44 from -32 (expected -29).
  • France's November PPI was up 1.1% m/m (last 0.0%), but down 3.3% yr/yr (last -0.8%).
  • Italy's December Business Confidence fell to 88.4 from 89.5 (expected 89.3) and Consumer Confidence rose to 96.6 from 95.0 (expected 96.0). October Industrial Sales fell 0.5% m/m (last 1.9%) but were up 1.7% yr/yr (last 3.4%).
• Today's Data:
  • Existing home sales increased 0.5% month-over-month in November to a seasonally adjusted annual rate of 4.13 million (Briefing.com consensus 4.10 million) from an upwardly revised 4.11 million (from 4.10 million) in October. Sales were down 1.0% on a year-over-year basis.
    • The key takeaway from the report is that home sales in November were aided by lower mortgage rates, yet limited inventory, combined with high prices, got in the way of stronger selling activity.
  • The final University of Michigan Consumer Sentiment reading for December decreased to 52.9 (Briefing.com consensus: 53.3) from the preliminary reading of 53.3. In the same period a year ago, the index stood at 74.0.
    • The key takeaway from the report is that consumer sentiment has fallen sharply versus the year-ago period, with "pocketbook issues," affordability concerns, and labor market worries weighing on consumers' psyche.
• Commodities:
  • WTI crude: +1.0% to $56.53/bbl
  • Gold: +0.5% to $4387.10/ozt
  • Copper: +1.3% to $5.51/lb
• Currencies:
  • EUR/USD: UNCH at 1.1723
  • GBP/USD: +0.1% to 1.3391
  • USD/CNH: UNCH at 7.0340
  • USD/JPY: +1.3% to 157.51
• The Week Ahead:
  • Monday: $69 bln 2-yr Treasury note auction results at 13:00 ET
  • Tuesday: Advance Q3 GDP (Briefing.com consensus 3.0%; prior 3.8%), advance Q3 GDP Deflator (Briefing.com consensus 2.7%; prior 2.1%), October Durable Orders (Briefing.com consensus 0.3%; prior 0.5%), and Durable Orders ex-transport (Briefing.com consensus -1.1%; prior 0.6%) at 8:30 ET; November Industrial Production (Briefing.com consensus 0.1%; prior NA) and Capacity Utilization (Briefing.com consensus 77.4%; prior NA) at 9:15 ET; December Consumer Confidence (Briefing.com consensus 89.0; prior 88.7) and November New Home Sales (prior NA) at 10:00 ET; and $70 bln 5-yr Treasury note auction results at 13:00 ET
  • Wednesday: Weekly MBA Mortgage Index (prior -3.8%) at 7:00 ET; weekly Initial Claims (Briefing.com consensus 226,000; prior 224,000) and Continuing Claims (prior 1.897 mln) at 8:30 ET; and $44 bln 7-yr Treasury note auction results at 11:30 ET; NYSE to close at 13:00 ET; Treasury market to close at 14:00 ET
  • Thursday: Bond and equity markets closed for Christmas Day
  • Friday: Nothing of note