Bond Market Update

Bounce Extended

• U.S. Treasuries are on track for a higher start with longer tenors expected to pace the early advance after underperforming yesterday. Treasury futures began inching higher in early evening trade, accelerating their advance alongside other sovereign debt once the focus turned to action in Europe. An element of geopolitical uncertainty was injected into the picture last evening when President Trump said after his meeting with Israeli Prime Minister Netanyahu that the U.S. "will take over the Gaza Strip." The night also brought a full slate of economic reports with Japan seeing strong wage growth in December, an unexpected slowdown in the growth of China's services sector in January, and final January Services PMI reading from the eurozone that were mostly disappointing. In the U.S., the Treasury will release its quarterly refunding statement at 8:30 ET after announcing two days ago that borrowing in Q1 will be $9 bln below the initial estimate. Crude oil is falling back below its 50-day moving average (72.15) while the U.S. Dollar Index is down 0.4% at 107.50, sliding below the 50-day moving average (107.78) of its own.
• Yield Check:
  • 2-yr: -3 bps to 4.19%
  • 3-yr: -4 bps to 4.21%
  • 5-yr: -5 bps to 4.27%
  • 10-yr: -5 bps to 4.46%
  • 30-yr: -5 bps to 4.70%

• News:
  • Former Bank of Japan policymaker Hayakawa reportedly expects two more rate hikes from the BoJ this year.
  • New Zealand's unemployment rate increased to 5.1% from 4.8% in Q4, prompting speculation about a potential 50-basis point cut from the Reserve Bank of New Zealand later this month.
  • China's January Caixin Services PMI hit 51.0 (expected 52.3; last 52.2).
  • Japan's December Overall Wage Income increased 4.8% yr/yr (expected 3.8%; last 3.9%). January Services PMI hit 53.0 (expected 52.7; last 50.9).
  • South Korea's January CPI was up 0.7% m/m (expected 0.4%; last 0.4%), rising 2.2% yr/yr (expected 2.0%; last 1.9%).
  • India's January Services PMI hit 56.5 (expected 56.8; last 59.3).
  • Hong Kong's January Manufacturing PMI hit 51.0 (last 51.1).
  • Singapore's December Retail Sales were down 1.5% m/m (last -2.8%), falling 2.9% yr/yr (last -0.5%).
  • Australia's December AIG Construction Index fell to -20.0 from -19.0 and Manufacturing Index fell to -22.7 from -17.9. January Services PMI hit 51.2 (expected 50.4; last 50.8).
  • New Zealand's Q4 Employment decreased by 0.1% qtr/qtr (expected -0.2%; last -0.5%). Q4 Labor Cost Index was up 0.6% qtr/qtr, as expected (last 0.6%), rising 2.9% yr/yr (expected 3.0%; last 3.4%). Q4 Un7employment Rate rose to 5.1% from 4.8%, as expected, and Participation Rate dipped to 71.0% from 71.1% (expected 71.1%).
  • Eurozone's January Services PMI hit 51.3 (expected 51.4; last 51.6). December PPI was up 0.4% m/m (expected 0.5%; last 1.7%) and was unchanged yr/yr (expected -0.1%; last -1.2%).
  • Germany's January Services PMI hit 52.5, as expected (last 51.2).
  • U.K.'s January Services PMI hit 50.8 (expected 51.2; last 51.1).
  • France's December Industrial Production fell 0.4% m/m (expected -0.1%; last 0.1%). January Services PMI hit 48.2 (expected 48.9; last 49.3).
  • Italy's January Services PMI hit 50.4 (expected 50.5; last 50.7). December Retail Sales rose 0.6% m/m (expected 0.1%; last -0.4%), increasing 0.6% yr/yr (last 1.1%).
  • Spain's January Services PMI hit 54.9 (expected 56.7; last 57.3).
• Commodities:
  • WTI Crude: -1.1% to $71.94/bbl
  • Gold: +0.5% to $2891.30/ozt
  • Copper: +0.2% to $4.362/lb
• Currencies:
  • EUR/USD: +0.4% to 1.0419
  • GBP/USD: +0.5% to 1.2536
  • USD/CNH: -0.1% to 7.2778
  • USD/JPY: -1.0% to 152.83
• Data out Today:
  • 7:00 ET: Weekly MBA Mortgage Index (actual 2.2%; 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)