Bond Market Update

Some Growth Jitters

• U.S. Treasuries capped off a volatile week of trading with gains across the curve. Those gains revved up following the 8:30 a.m. ET release of a much weaker-than-expected Retail Sales report for January, which triggered some concerns about consumer fatigue and weaker growth in general. That report was accompanied by an Import-Export Price Index report that lacked any signs of disinflation and an Industrial Production report for January that looked good at the headline level, but was really not that great as the 0.5% month-over-month growth was driven entirely by the output of utilities, which cranked up to meet demand for heat. The growth jitters pulled forward the market's prevailing rate cut expectation to the June/July FOMC meeting(s) versus the September/October FOMC meeting(s) following Wednesday's CPI release. That view weighed on the dollar today. The U.S. Dollar Index was down 0.6% to 106.73 (-1.2% for the week) with the greenback losing ground in most major pair trades. As a reminder, the Treasury market will be closed Monday for Presidents Day.
• Yield Check:
  • 2-yr: -5 bps to 4.26% (-3 bps for the week)
  • 3-yr: -6 bps to 4.27% (-4 bps for the week)
  • 5-yr: -6 bps to 4.33% (-1 bp for the week)
  • 10-yr: -5 bps to 4.48% (-1 bp for the week)
  • 30-yr: -3 bps to 4.70% (+1 bp for the week)

• News:
  • President Trump and India's Prime Minister Modi signed an agreement to expand collaboration in defense, energy, and trade routes.
  • The Bank of Japan's Board is expected to gain a hawkish member once Junko Koeda is confirmed next week.
  • A former Reserve Bank of Australia policymaker cautioned that the market is overestimating the likelihood of a 25-basis point cut next week.
  • Halifax observed that first-time buyers make up 20% of the U.K.'s housing market.
  • Ukrainian President Volodymyr Zelenskyy tells Vice President JD Vance that Ukraine wants security guarantees prior to any discussions about ending war, according to AP
  • President Trump says auto tariffs will begin on April 2, according to Bloomberg
  • President Trump says he is ending former President Biden's order that banned offshore drilling on 625 million acres, according to CNBC
  • China's January New Loans totaled CNY5.13 trln (expected CNY770.0 bln; last CNY990 bln), January Outstanding Loans grew 7.5% yr/yr (expected 7.3%; last 7.6%), and January Total Social Financing reached CNY7.06 trln (expected CNY6.40 trln; last CNY2.86 trln).
  • Eurozone's Q4 GDP was up 0.1% qtr/qtr (expected 0.0%; last 0.4%), growing 0.9% yr/yr, as expected (last 0.9%). Q4 Employment increased by 0.1% qtr/qtr, as expected (last 0.2%), rising 0.6% yr/yr (expected 0.8%; last 1.0%).
• Today's Data:
  • Retail sales declined 0.9% month-over-month in January (Briefing.com consensus 0.0%) following an upwardly revised 0.7% increase (from 0.4%) in December. Excluding autos, retail sales declined 0.4% month-over-month (Briefing.com consensus 0.3%) following an upwardly revised 0.7% increase (from 0.4%) in December.
    • The key takeaway from the report is that there was a notable pullback in spending on goods, something that can be attributed in part to abnormal weather. The full picture, however, points to a tired consumer after the holidays, raising the question as to whether that fatigue will persist because of inflation pressures or prove to be short-lived.
  • Total industrial production increased 0.5% month-over-month in January (Briefing.com consensus 0.3%) following an upwardly revised 1.0% increase (from 0.9%) in December. The capacity utilization rate jumped to 77.8% (Briefing.com consensus 77.7%) from a downwardly revised 77.5% (from 77.6%) in December. Total industrial production increased 2.0% yr/yr while the capacity utilization rate was 1.8 percentage points below its long-run average.
    • The key takeaway from the report is that the jump industrial production in January was rooted entirely in the volatile component of utilities output, which surged as cold temperatures boosted the demand for heating.
  • Import prices rose 0.3% month-over-month in January and were up 1.9% year-over-year, versus down 1.3% for the 12 months ending January 2024. Excluding fuel, import prices were up 0.1% and were up 1.8% year-over-year, versus down 0.3% for the 12 months ending January 2024.Export prices increased 1.3% month-over-month in January and were up 2.7% year-over-year, versus down 2.4% for the 12 months ending January 2024. Excluding agricultural products, export prices jumped 1.5% month-over-month and were up 2.9% year-over-year, versus down 1.5% for the 12 months ending January 2024.
    • The key takeaway from the report is the recognition that there was inflation, as opposed to disinflation, across the report.
  • December Business Inventories decreased 0.2% month-over-month (Briefing.com consensus 0.1%) following a 0.1% increase in November.
• Commodities:
  • WTI Crude: -0.9% to $70.68/bbl
  • Gold: -1.5% to $2899.90/ozt
  • Copper: -2.3% to $4.66/lb
• Currencies:
  • EUR/USD: +0.3% to 1.0496
  • GBP/USD: +0.4% to 1.2592
  • USD/CNH: -0.2% to 7.2566
  • USD/JPY: -0.4% to 152.25
• The Week Ahead:
  • Monday: Bond and equity markets closed for Presidents Day
  • Tuesday: February Empire State Manufacturing (prior -12.6) at 8:30 ET; February NAHB Housing Market Index (prior 47) at 10:00 ET; and December Net Long-Term TIC Flows (prior $79.0 bln) at 16:00 ET
  • Wednesday: Weekly MBA Mortgage Index (prior 2.3%) at 7:00 ET; January Housing Starts (prior 1.499 mln) and Building Permits (prior 1.483 mln) at 8:30 ET; $16 bln 20-yr Treasury bond auction at 13:00 ET; and January FOMC Minutes at 14:00 ET
  • Thursday: February Philadelphia Fed (prior 44.3), weekly Initial Claims (prior 213,000), and Continuing Claims (prior 1.850 mln) at 8:30 ET; weekly natural gas inventories (prior -100 bcf) at 10:30 ET; and weekly natural gas inventories (prior +4.07 mln) at 11:00 ET
  • Friday: Flash February S&P Global U.S. Manufacturing PMI (prior 51.2) and flash February S&P Global U.S. Services PMI (prior 52.9) at 9:45 ET; and January Existing Home Sales (prior 4.24 mln), and final February University of Michigan Consumer Sentiment (prior 67.8) at 10:00 ET