Bond Market Update

Spotlight Remains on Tariffs

• U.S. Treasuries are on track for a lower start in longer tenors while the short end is expected to show some early relative strength after underperforming yesterday. Treasury futures spent the night in a downward trend that was interrupted with a brief rally to highs after China announced a 15% tariff on coal and LNG imports from the U.S., a 10% tariff on crude oil and machinery imports, and an antitrust investigation into Google as retaliation for U.S. tariffs on Chinese imports. The midnight spike was short-lived, giving way to a slide to fresh lows as the night went on. Besides the ongoing focus on tariffs, the night did not bring any noteworthy developments on the economic front. Economic data during the U.S. session will be limited to the 10:00 ET release of December job openings (prior 8.098 mln) and December Factory Orders (Briefing.com consensus -0.3%; prior -0.4%). Crude oil is falling past its 50-day moving average (72.09) to a level not seen since the end of December while the U.S. Dollar Index is down 0.4% at 108.60.
• Yield Check:
  • 2-yr: -1 bp to 4.26%
  • 3-yr: +1 bp to 4.30%
  • 5-yr: +2 bps to 4.38%
  • 10-yr: +4 bps to 4.58%
  • 30-yr: +5 bps to 4.82%

• News:
  • The U.S. Treasury announced after yesterday's cash close that borrowing in the first quarter is expected to reach $815 bln, which is $9 bln below the estimate from October. Borrowing in Q2 is expected to reach $12 bln.
  • Japan's Prime Minister Ishiba said that it is unclear if deflation will not make a return.
  • India's Prime Minister Modi will meet with President Trump at the White House next week.
  • There was ongoing speculation that President Trump will announce a 10% tariff on European imports.
  • The market is almost certain that the Bank of England will announce a 25-basis point rate cut on Thursday.
  • French Prime Minister Bayrou will face a no-confidence vote after pushing through a 2025 budget, but he is expected to survive the vote.
  • Japan's January Monetary Base was down 2.5% yr/yr (expected -0.5%; last -1.0%).
  • New Zealand's December Building Consents fell 5.6% m/m (last 4.9%).
  • France's December government budget deficit narrowed to EUR156.3 bln from a deficit of EUR172.5 bln.
  • Spain's January Unemployment increased by 38,700 (expected 45,400; last -25,300).
• Commodities:
  • WTI Crude: -2.2% to $71.53/bbl
  • Gold: -0.4% to $2846.20/ozt
  • Copper: +0.4% to $4.322/lb
• Currencies:
  • EUR/USD: -0.2% to 1.0327
  • GBP/USD: -0.3% to 1.2411
  • USD/CNH: -0.2% to 7.2959
  • USD/JPY: +0.4% to 155.26
• Data out Today:
  • 10:00 ET: December job openings (prior 8.098 mln) and December Factory Orders (Briefing.com consensus -0.3%; prior -0.4%)