Bond Market Update

 Long End Lags

• U.S. Treasuries are on track for a modestly lower start with longer tenors expected to show some relative weakness in the early going. Treasury futures saw very little movement during the early part of the night, sliding to lows after the focus shifted to action in Europe. The market received a handful of economic reports, including a reminder of falling house prices in China and a CPI report from the U.K. that was a touch hotter than expected. The Reserve Bank of New Zealand announced a 50-basis point rate cut and hinted at more easing in the coming months. On the tariff front, President Trump said yesterday that imports of cars, drugs, and chips will face a 25% tariff. The administration's trade officials will meet with EU trade chief Sefcovic today. Today's session will include the 8:30 ET release of January Housing Starts (Briefing.com consensus 1.400 mln; prior 1.499 mln) and Building Permits (Briefing.com consensus 1.450 mln; prior 1.483 mln), followed by a $16 bln 20-yr Treasury bond auction at 13:00 ET. Crude oil is building on yesterday's gain while the U.S. Dollar Index is up 0.1% at 107.20.
• Yield Check:
  • 2-yr: UNCH at 4.30%
  • 3-yr: +1 bp to 4.33%
  • 5-yr: +1 bp to 4.40%
  • 10-yr: +3 bps to 4.57%
  • 30-yr: +4 bps to 4.80%

• News:
  • The Reserve Bank of New Zealand lowered its official cash rate by 50 basis points to 3.75%, as expected. Governor Orr said that two more 25-basis point cuts can be expected by the middle of the year.
  • There were growing expectations for the passage of the K-Chips Act that will increase tax incentives for South Korean chipmakers.
  • European Central Bank policymaker Panetta said that signs of weakness in the eurozone economy are more persistent than what has been anticipated.
  • China's January House Prices fell 5.0% yr/yr (last -5.3%). January FDI was down 13.4% YTD (last -27.1%).
  • Japan's December Core Machinery Orders were down 1.2% m/m (expected 0.4%; last 3.4%) but up 4.3% yr/yr (expected 6.9%; last 10.3%). January trade deficit reached JPY2.759 trln (expected deficit of JPY2.10 trln; last surplus of JPY132.5 bln) as imports rose 16.7% yr/yr (expected 9.7%; last 1.7%) and exports increased 7.2% yr/yr (expected 7.9%; last 2.8%).
  • Australia's January MI Leading Index was up 0.1% m/m last 0.0%). Q4 Wage Price Index rose 0.7% qtr/qtr (expected 0.8%; last 0.9%), increasing 3.2% yr/yr, as expected (last 3.6%).
  • New Zealand's Q4 Input PPI was down 0.9% qtr/qtr (last 1.9%) and Output PPI was down 0.1% qtr/qtr (last 1.5%).
  • Eurozone's December Current Account surplus reached EUR38.4 bln (expected surplus of EUR30.2 bln; last surplus of EUR25.0 bln).
  • U.K.'s January CPI was down 0.1% m/m (expected -0.3%; last 0.3%) but up 3.0% yr/yr (expected 2.8%; last 2.5%). January Core CPI was down 0.4% m/m (expected -0.5%; last 0.3%) but up 3.7% yr/yr, as expected (last 3.2%). January Input PPI was up 0.8% m/m (expected 0.7%; last 0.2%) and Output PPI was up 0.5% m/m (expected 0.2%; last -0.2%). January House Price Index rose 4.6% yr/yr (expected 3.2%; last 3.3%).
• Commodities:
  • WTI Crude: +0.9% to $72.46/bbl
  • Gold: +0.2% to $2953.70/ozt
  • Copper: +0.1% to 7.595/lb
• Currencies:
  • EUR/USD: -0.1% to 1.0431
  • GBP/USD: -0.2% to 1.2591
  • USD/CNH: +0.2% to 7.2890 
  • USD/JPY: -0.1% to 151.92
• Data out Today:
  • 7:00 ET: Weekly MBA Mortgage Index (actual -6.6%; prior 2.3%)
  • 8:30 ET: January Housing Starts (Briefing.com consensus 1.400 mln; prior 1.499 mln) and Building Permits (Briefing.com consensus 1.450 mln; prior 1.483 mln)
  • 14:00 ET: January FOMC Minutes
• Treasury Auctions:
  • 13:00 ET: $16 bln 20-yr Treasury bond auction results