Bond Market Update

Quiet Start to New Week

• U.S. Treasuries began the week in mostly flat fashion with the 2-yr note inching higher while the long bond dipped, adding to its losses from the past two days. With no top-tier data in the way, Treasuries followed their slightly lower open with a steady rise through the morning. However, that move gave way to a late-morning retreat, that continued through the release of the January Survey of Consumer Expectations from the New York Fed, which showed that inflation expectations among consumers were unchanged at the one-year (3.0%) and three-year (3.0%) horizons, but the five-year outlook increased to 3.0% from 2.7%. The market continued inching lower as the day went on, with 10s and 30s finishing near their morning lows while shorter tenors outperformed, finishing just above their starting levels. Crude oil returned to its 50-day moving average (72.23) while the U.S. Dollar Index rose 0.3% to 108.31, overtaking the 50-day moving average (107.88) of its own.
• Yield Check:
  • 2-yr: -1 bp to 4.27%
  • 3-yr: -1 bp to 4.29%
  • 5-yr: UNCH at 4.33%
  • 10-yr: +1 bp to 4.49%
  • 30-yr: +2 bps to 4.71%

• News:
  • President Trump announced that a 25% tariff will be imposed on aluminum and steel imports.
  • President Trump said that there are irregularities in the Treasury market, but did not go into detail.
  • Japan's Prime Minister Ishiba told President Trump during their meeting that Japan's investment in the U.S. will increase to $1 trln and that Japan will double its defense spending by 2027 and import more energy from the U.S.
  • German Chancellor Scholz said that the EU is ready to offer a quick response if U.S. tariffs target European goods.
  • China's January CPI was up 0.7% m/m (expected 0.8%; last 0.0%), rising 0.5% yr/yr (expected 0.4%; last 0.1%). January PPI was down 2.3% yr/yr (expected -2.2%; last -2.3%).
  • Japan's January Economy Watchers Current Index fell to 48.6 from 49.0 (expected 49.7) and January Bank Lending was up 3.0% yr/yr (expected 3.1%; last 3.0%). December Current Account surplus reached JPY2.73 trln, as expected last surplus of JPY3.03 trln).
  • Australia's December Building Approvals rose 0.7% m/m, as expected (last -3.4%) and Private House Approvals fell 3.0% m/m, as expected (last -1.7%).
  • Eurozone's February Sentix Investor Confidence rose to -12.7 from -17.7 (expected -16.4).
• Commodities:
  • WTI crude: +2.0% to $72.38/bbl
  • Gold: +1.7% to $2934.60/ozt
  • Copper: +2.4% to $4.31/lb
• Currencies:
  • EUR/USD: -0.2% to 1.0306
  • GBP/USD: -0.3% to 1.2366
  • USD/CNH: +0.1% to 7.3109
  • USD/JPY: +0.4% to 152.03
• The Day Ahead:
  • 6:00 ET: January NFIB Small Business Optimism Index (prior 105.1)
• Treasury Auctions:
  • 13:00 ET: $58 bln 3-yr Treasury note auction results