Bond Market Update

Opening Weakness Overcome

• U.S. Treasuries climbed again on Wednesday, pressuring the 10-yr yield back to its 200-day moving average (4.543%). The market appeared to be on track to snap its five-day streak, as Treasuries faced some light pressure during the initial two hours of trade, but the market overcame the early weakness in the late morning with the belly leading the way. The market benefited from some more buying in the afternoon after the U.S. Treasury sold $44 bln in 7-yr notes, making for the third strong note auction in a row. There were some noteworthy developments in Washington, as the House passed a budget bill by a 217-215 vote, President Trump ordered a review of U.S. copper imports, and Ukraine is expected to accept a rare earths deal with the U.S. to end the war with Russia. Crude oil dipped to a fresh low for the year while the U.S. Dollar Index rose 0.1% to 106.45.
• Yield Check:
  • 2-yr: -3 bps to 4.07%
  • 3-yr: -5 bps to 4.04%
  • 5-yr: -6 bps to 4.08%
  • 10-yr: -5 bps to 4.25%
  • 30-yr: -5 bps to 4.51%

• News:
  • President Trump repeated that tariffs on imports from Canada and Mexico will go into effect on April 2. 
  • Japanese officials are reportedly closing in on a budget agreement.
  • Hong Kong's Financial Secretary Chan said that a higher budget deficit is being recorded this year and that bond issuance will be increased.
  • China's Vice Commerce Minister Wang has met with certain U.S. business leaders to clarify China's position on U.S. tariffs.
  • Japan's December BoJ Core CPI was up 2.2% yr/yr (expected 2.0%; last 1.9%). December Leading Index rose to 108.3 from 107.5 (expected 108.9) and Coincident Indicator was up 1.0% m/m (expected 1.4%; last -1.4%).
  • Hong Kong's Q4 GDP was up 0.8% qtr/qtr, as expected (last -1.4%), growing 2.4% yr/yr, as expected (last 1.8%).
  • Singapore's January Industrial Production rose 4.5% m/m (expected -3.5%; last -5.4%), increasing 9.1% yr/yr (expected 9.8%; last 5.2%).
  • Australia's January CPI was up 2.5% yr/yr (expected 2.6%; last 2.5%) and Q4 Construction Work Done rose 0.5% qtr/qtr (expected 1.0%; last 2.0%).
  • Germany's March GfK Consumer Climate fell to -24.7 from -22.6 (expected -21.7).
  • France's February Consumer Confidence rose to 93 from 92, as expected.
  • Spain's January PPI was up 2.6% yr/yr (last 2.3%). · Swiss February ZEW Expectations fell to 3.4 from 17.7.
• Today's Data:
  • New home sales decreased 10.5% month-over-month in January to a seasonally adjusted annual rate of 657,000 units (Briefing.com consensus 681,000) from an upwardly revised 734,000 (from 698,000) in December. On a year-over-year basis, new home sales were down 1.1%.
    • The key takeaway from the report is that new home sales in January felt the brunt of affordability constraints that were tightened by elevated mortgage rates and higher prices. · The weekly MBA Mortgage Index fell 1.2% to follow last week's 6.6% decrease. The Refinance Index fell 3.6% while the Purchase Index was up 0.2%.
  • Weekly crude oil inventories decreased by 2.332 mln barrels after increasing by 4.633 mln barrels a week ago.
  • $44 bln 7-year Treasury note auction results (prior 12-auction average):
    • High yield: 4.194% (4.262%).
    • Bid-to-cover: 2.64 (2.59).
    • Indirect bid: 66.1% (71.0%).
    • Direct bid: 25.2% (17.4%).
• Commodities:
  • WTI crude: -0.4% to $68.66/bbl
  • Gold: +0.4% to $2929.50/ozt
  • Copper: +1.1% to $4.58/lb
• Currencies:
  • EUR/USD: -0.2% to 1.0490 
  • GBP/USD: +0.2% to 1.2684
  • USD/CNH: +0.2% to 7.2637
  • USD/JPY: -0.1% to 148.86
• The Day Ahead: 
  • 8:30 ET: Q4 GDP -- second estimate (Briefing.com consensus 2.3%; prior 2.3%), Q4 GDP Deflator -- second estimate (Briefing.com consensus 2.2%; prior 2.2%), weekly Initial Claims (Briefing.com consensus 220,000; prior 219,000) and Continuing Claims (prior 1.869 mln), and January Durable Orders (Briefing.com consensus 1.8%; prior -2.2%), and Durable Orders ex-transportation (Briefing.com consensus 0.4%; prior 0.3%)
  • 10:00 ET: January Pending Home Sales (Briefing.com consensus -0.8%; prior -5.5%)
  • 10:30 ET: Weekly natural gas inventories (prior -196 bcf)