Bond Market Update

Opening Losses Reversed as Focus Remains on Tariffs

• U.S. Treasuries ended Tuesday with modest gains across the curve after overcoming a lower start. Treasuries started the session in the red after a night that was quiet on the global economic front, leaving the overall focus on tariff-related news. The Trump administration delayed the implementation of tariffs on imports from Canada and there was an expectation that President Trump would speak with China's President Xi, but that conversation did not take place today. Instead, 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. Treasuries notched session lows during the first 30 minutes of action with yields inching above highs from last week. However, the rest of the morning saw a steady rebound that lifted the entire complex into positive territory with shorter tenors leading the way. That move sent the 2-yr yield back below its 50-day moving average (4.256%) while the 5-yr yield slipped below the 50-day moving average (4.320%) of its own. Economic data released today included a sharp drop in job openings for December (to 7.600 million from a revised 8.156 million in November) and a Factory Orders report for December (-0.9%; Briefing.com consensus -0.3%), which was disappointing. Crude oil fell below its 50-day moving average (72.12) before bouncing back above that mark while the U.S. Dollar Index fell 1.0% to 107.94.
• Yield Check:
  • 2-yr: -5 bps to 4.22%
  • 3-yr: -4 bps to 4.25%
  • 5-yr: -4 bps to 4.32%
  • 10-yr: -3 bps to 4.51%
  • 30-yr: -2 bps to 4.75%

• News: 
  • San Francisco Fed President (non-voter) Daly said that the Fed is in a good position to wait and see how the economy evolves. 
  • 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 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.
  • 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).
• Today's Data:
  • Job openings fell to 7.600 million in December from a revised 8.156 million (from 8.098 million) in November.
  • Factory orders decreased 0.9% month-over-month in December (Briefing.com consensus -0.3%) following a downwardly revised 0.8% decline (from -0.4%) in November. Excluding transportation, factory orders rose 0.3% on the heels of a 0.2% increase in November. Shipments of manufactured goods jumped 0.6% in December following a 0.1% increase in November.
    • The key takeaway from the report is that the weakness in factory orders was concentrated in the durable goods space, and primarily in nondefense aircraft and parts; but business spending was up, evidenced by the growth in new orders for nondefense capital goods excluding aircraft.
• Commodities:
  • WTI crude: -0.5% to $72.76/bbl
  • Gold: +0.6% to $2874.90/ozt
  • Copper: +1.2% to $4.37/lb
• Currencies:
  • EUR/USD: +0.4% to 1.0381
  • GBP/USD: +0.3% to 1.2482
  • USD/CNH: -0.3% to 7.2864
  • USD/JPY: -0.3% to 154.28
• The Day Ahead:
  • 7:00 ET: Weekly MBA Mortgage Index (prior -2.0%)
  • 8:15 ET: January ADP Employment Change (Briefing.com consensus 155,000; prior 122,000)
  • 8:30 ET: December Trade Balance (Briefing.com consensus -$98.0 bln; prior -$78.2 bln)
  • 9:45 ET: Final January S&P Global U.S. Services PMI (prior 52.8)
  • 10:00 ET: January ISM Services (Briefing.com consensus 53.9%; prior 54.1%)
  • 10:30 ET: Weekly crude oil inventories (prior +3.46 mln)