Bond Market Update

Longer Tenors Pace Christmas Eve Climb

• U.S. Treasuries had an upbeat showing during Wednesday's abbreviated session with longer tenors reaching fresh highs for the week while the short end lagged in early trade, but eventually finished higher. Longer tenors outperformed from the start after a subdued night that featured some holiday closures. The Japanese government confirmed that it plans to borrow a record JPY29.6 trln in fiscal 2026, which briefly lifted Japan's 30-yr yield to 3.40%, a fresh high for the year. Longer tenors climbed in morning trade even though the latest weekly jobless claims report showed an unexpected drop in Initial Claims (to 214,000 from 224,000; Briefing.com consensus 226,000). The advance continued as the morning went on with the complex reaching highs after the U.S. Treasury capped this week's underwhelming note offering slate with a solid $44 bln 7-yr note sale. Today's advance left the 30-yr yield just above its 200-day moving average (4.787%) while the 2-yr yield remained below its 50-day moving average (3.533%) thanks to the intraday rally. Bond and equity markets will be closed for Christmas Day tomorrow, but they be open for a full session on Friday. Crude oil ended the day flat near $58.50/bbl while the U.S. Dollar Index spent the day near its flat line at 97.94.
• Yield Check:
  • 2-yr: -2 bps to 3.51%
  • 3-yr: -2 bps to 3.56%
  • 5-yr: -2 bps to 3.72%
  • 10-yr: -3 bps to 4.14%
  • 30-yr: -3 bps to 4.80%

• News:
  • Rate hike expectations for the Bank of Japan have receded with the likelihood of a hike by June sitting around 57%.
  • BlackRock may abandon the Panama ports deal due to China's demand for a majority stake for its main shipping company.
  • The French parliament passed a bill to keep the government running until an agreement is made on a budget for 2026 with the original deadline just a week away.
  • Japan's November Corporate Services Price Index was up 2.7% yr/yr, as expected (last 2.7%). November Leading Index rose to 109.8 from 108.6 (expected 11.0).
  • South Korea's December Consumer Confidence fell to 109.9 from 112.4.
• Today's Data:
  • Initial jobless claims for the week ending December 20 decreased by 10,000 to 214,000 (Briefing.com consensus: 226,000), while continuing jobless claims for the week ending December 13 increased by 38,000 to 1.923 million.
    • The key takeaway from the report is the redundancy of the messaging that low initial claims and high continuing claims connote a low firing-low hiring environment that is a speedbump for growth prospects.
  • The weekly MBA Mortgage Index fell 5.0% to follow last week's 3.8% decrease. The Purchase Index fell 3.7% while the Refinance Index was down 5.6%.
  • $44 bln 7-year Treasury note auction results (prior 12-auction average):
    • High yield: 3.930% (4.108%).
    • Bid-to-cover: 2.51 (2.58).
    • Indirect bid: 59.0% (66.8%).
    • Direct bid: 31.6% (22.8%).
• Commodities:
  • WTI crude: UNCH at $58.40/bbl
  • Gold: UNCH at $4505.40/ozt
  • Copper: +0.4% to $5.57/lb
• Currencies:
  • EUR/USD: -0.1% to 1.1779
  • GBP/USD: -0.1% to 1.3500
  • USD/CNH: -0.1% to 7.0080
  • USD/JPY: -0.2% to 155.95
• The Day Ahead:
  • Bond and equity markets closed for Christmas Day