Bond Market Update

February Gains Extended

• U.S. Treasuries finished February on a strong note, sending the 10-yr yield to a level not seen since early December while the 2-yr yield reached a level last seen in late October. The trading day started on a higher note with Treasuries quickly reclaiming their losses from Thursday. The market saw more buying as the day went on, rising through the release of a Personal Income/Outlays report for January, which showed a 0.5% m/m decline in real personal spending, which will weigh on growth expectations. Accordingly, the Atlanta Fed noted in today's update to its GDPNow forecast that a 1.5% contraction is being projected for Q1, down sharply from the previous estimate that called for 2.3% growth. The Atlanta Fed noted that downward changes in the contribution of net exports to GDP and a much lower estimate of real personal consumption expenditures were behind the revision. Treasuries edged above their morning highs in the afternoon as Ukraine's President Zelenskyy visited the White House, but did not sign the rare earths deal. The meeting was cut short after a tense exchange in front of the cameras, during which President Trump said that Ukraine's leader is disrespecting the United States. President Trump issued a statement, saying that President Zelenskyy is not ready for peace and that he should return once he is. The 2s10s slope was unchanged this week, but compressed by ten basis points in February as the 10-yr note outperformed. Crude oil fell back below $70/bbl, widening its February loss to $2.75, or 3.8%, while the U.S. Dollar Index climbed 0.4% to 107.62, extending this week's gain to 0.9%. The Index lost 0.8% in February.
• Yield Check:
  • 2-yr: -8 bps to 4.00% (-19 bps this week; -24 bps in February)
  • 3-yr: -8 bps to 3.98% (-22 bps this week; -30 bps in February)
  • 5-yr: -8 bps to 4.03% (-23 bps this week; -33 bps in February)
  • 10-yr: -5 bps to 4.23% (-19 bps this week; -34 bps in February)
  • 30-yr: -4 bps to 4.52% (-15 bps this week; -29 bps in February)

• News:
  • The U.S. Treasury will follow this week's stellar slate of note auctions with $254 bln in bill sales on Monday and Tuesday.
  • President Trump said during a meeting with British Prime Minister Starmer that the U.S. and the U.K. are working on a trade deal.
  • A draft document from China's Politburo indicated that the commitment to introducing proactive macroeconomic policies will be reiterated.
  • Bank of Japan Governor Ueda said that the central bank is open to increasing its purchases of JGBs if longer-term rates rise in abnormal fashion.
  • Japan's February Tokyo CPI was up 2.9% yr/yr (last 3.4%) and Core CPI was up 2.2% (expected 2.3%; last 2.5%). January Industrial Production fell 1.1% m/m (expected -1.0%; last -0.2%). January Retail Sales rose 3.9% yr/yr (expected 3.9%; last 3.5%) and January Housing Starts were down 4.6% yr/yr (expected -2.6%; last -2.5%).
  • Australia's January Housing Credit was up 0.4% m/m (last 0.5%).
  • India's Q3 GDP Quarterly was up 6.2% yr/yr (expected 6.3%; last 5.4%) and GDP Annual was up 6.5% (expected 6.4%; last 8.2%).
  • UK's February Nationwide HPI was up 0.4% m/m (expected 0.2%; last 0.1%), rising 3.9% yr/yr (expected 3.4%; last 4.1%).
  • Germany's January Retail Sales were up 0.2% m/m (expected 0.4%; last -0.9%), rising 2.9% yr/yr (last 2.0%); January Import Price Index was up 1.1% m/m (expected 0.7%; last 0.4%), rising 3.1% yr/yr (expected 2.7%; last 2.0%); February Unemployment Rate remained at 6.2% (expected 6.2%) and February Unemployment increased by 5,000 (expected 14,000; last 11,000).
  • France's February CPI was up 0.2% m/m (expected 0.5%; last 0.2%), rising 0.8% yr/yr (expected 1.0%; last 1.7%); January Consumer Spending was down 0.5% (expected -0.6%; last 0.7%). Q4 GDP contracted 0.1% qtr/qtr (expected -0.1%; last 0.4%) but was up 0.6% yr/yr (expected 0.7%; last 1.2%). February HICP was unchanged m/m (expected 0.3%; last -0.2%), rising 0.9% yr/yr (expected 1.2%; last 1.8%). Q4 nonfarm payrolls were down 0.3% qtr/qtr (expected -0.2%; last 0.1%).
  • Italy's February CPI was up 0.2% m/m (expected 0.2%; last 0.6%), rising 1.7% yr/yr (expected 1.7%; last 1.5%); February HICP was up 0.1% m/m (expected 0.1%; last -0.8%), rising 1.7% yr/yr (expected 1.8%; last 1.7%).
• Today's Data:
  • Personal income increased a robust 0.9% month-over-month (Briefing.com consensus 0.3%), led by a 1.8% jump in personal current transfer receipts, following a 0.4% increase in December. Personal spending, however, declined 0.2% month-over-month (Briefing.com consensus 0.2%) following an upwardly revised 0.8% increase (from 0.7%) in December. The PCE Price Index was up 0.3% month-over-month, as expected, and up 2.5% year-over-year versus 2.6% in December. The core-PCE Price Index was up 0.3%, also as expected, and was up 2.6% year-over-year versus 2.9% in December.
    • The key takeaway from the report isn't singular. There are two: there was welcome disinflation on a year-over-year basis, yet there was a noticeable 0.5% month-over-month decline in real personal spending, which is going to be a big drag on Q1 GDP forecasts. Net-net, not a great report for the growth outlook considering, too, that the personal savings rate jumped to 4.6% from 3.5%.
  • The January Adv. Intl. Trade in Goods Report showed a large widening in the deficit to $153.3 billion from a revised $122.0 billion (from -$122.1 billion) in December. Adv. Retail Inventories declined 0.1% month-over-month following a downwardly revised 0.5% decline (from -0.3%) in December. Adv. Wholesale Inventories increased 0.7% month-over-month following an upwardly revised 0.4% decline (from -0.5%) in December.
    • The key takeaway from the report is the widening goods deficit. That was likely a byproduct of the tariff push as importers worked to get ahead of the tariffs, yet it will likely stoke President Trump's push to get going with the tariff implementation.
  • The Chicago PMI hit 45.5 in February (Briefing.com consensus 41.2), up from 39.5 in January.
• Commodities:
  • WTI crude: -0.9% to $69.71/bbl
  • Gold: -1.6% to $2849.70/ozt
  • Copper: -1.7% to $4.54/lb
• Currencies:
  • EUR/USD: -0.3% to 1.0365
  • GBP/USD: -0.2% to 1.2572
  • USD/CNH: -0.1% to 7.2936
  • USD/JPY: +0.5% to 150.53
• The Week Ahead:
  • Monday: February ISM Manufacturing Index (prior 50.9%) and January Construction Spending (prior 0.5%) at 10:00 ET
  • Tuesday: Nothing of note
  • Wednesday: Weekly MBA Mortgage Index (prior -1.2%) at 7:00 ET; February ADP Employment Change (prior 183,000) at 8:15 ET; February ISM Services (prior 52.8%) and January Factory Orders (prior -0.9%) at 10:00 ET; and weekly crude oil inventories (prior -2.33 mln) at 10:30 ET
  • Thursday: January Trade Balance (prior -$98.4 bln), Revised Q4 Productivity (prior 1.2%), Revised Q4 Unit Labor Costs (prior 3.0%), weekly Initial Claims (prior 242,000), and Continuing Claims (prior 1.862 mln) at 8:30 ET; January Wholesale Inventories (prior -0.5%) at 10:00 ET; and weekly natural gas inventories (prior -261 bcf) at 10:30 ET
  • Friday: February Nonfarm Payrolls (prior 143,000), Nonfarm Private Payrolls (prior 111,000), Average Hourly Earnings (prior 0.5%), Unemployment Rate (prior 4.0%), and Average Workweek (prior 34.1) at 8:30 ET; and January Consumer Credit (prior $40.8 bln) at 15:00 ET