Bond Market Update

10-Yr Yield at Seven Week Low

• U.S. Treasuries spent the Wednesday session in a steady daylong advance that got started in the overnight futures market. Treasury futures began inching higher in the early hours of the Asian session, accelerating as the night went on. The advance followed President Trump's press conference with Israeli Prime Minister Netanyahu, during which President Trump surprised everyone listening by saying that the U.S. will take over the Gaza Strip. The advance continued through the release of softer-than-expected Services PMI readings in the eurozone, with the market extending to highs shortly after the ISM Services PMI for the U.S. (52.8%; Briefing.com consensus 53.9%; prior 54.1%) missed expectations, showing a deceleration in the pace of growth. The rally, which made for a continuation of yesterday's bounce off opening lows, sent yields on 10s and 30s past their respective 50-day moving averages to seven-week lows while the 2-yr yield fell to its lowest level in eight weeks. Today's rally was undisturbed by the news from the U.S. Treasury that it will increase the size of this month's 10-, 20-, and 30-yr auctions by three billion apiece. Next week's note and bond issuance will raise $125 bln. Crude oil fell back below its 50-day moving average (72.13), settling at its lowest level of the year, while the U.S. Dollar Index slid 0.4% to 107.59, falling below its own 50-day moving average (107.78).
• Yield Check:
  • 2-yr: -4 bps to 4.18%
  • 3-yr: -5 bps to 4.20%
  • 5-yr: -8 bps to 4.24%
  • 10-yr: -9 bps to 4.42%
  • 30-yr: -11 bps to 4.64%

• News:
  • The U.S. Treasury will sell $58 bln in 3-yr notes on Tuesday, February 11, followed by a $42 bln 10-yr note auction on Wednesday, and a $25 bln 30-yr bond auction on Thursday.
  • The Atlanta Fed's GDPNow forecast for Q1 GDP was lowered to 2.9% from 3.9% in the previous estimate.
  • French Prime Minister Bayrou survived a vote of no confidence, which was expected.
  • 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 Unemployment 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).
• Today's Data:
  • The weekly MBA Mortgage Index rose 2.2% after falling 2.0% a week ago. The Refinance Index rose 12.2% while the Purchase Index fell 3.5%.
  • The S&P Global U.S. Services PMI hit 52.9 in the final reading for January, up from 52.8 in the preliminary reading, but down from December's final reading of 56.8.
  • The ISM Services PMI decreased to 52.8% in January (Briefing.com consensus 53.9%) from a downwardly revised 54.0% (from 54.1%) in December. The dividing line between expansion and contraction is 50.0%, so the January reading reflects services sector activity expanding but at a slower pace than the prior month. January marked the 53rd time in 56 months that the Services PMI indicated expansion.
    • The key takeaway from the report is that the pace of expansion in the nation's largest sector decelerated in January. That will likely temper growth forecasts for the first quarter.
  • The ADP Employment Change Report for January showed an 183,000 increase in private-sector jobs (Briefing.com consensus 155,000) following an upwardly revised 176,000 (from 122,000) in December.
    • The key takeaway from the report is that the entirety of the increase was in the service-providing sector (190,000). There were 6,000 fewer jobs in the goods-producing sector.
  • The December Trade Balance Report showed a widening in the deficit to $98.4 billion (Briefing.com consensus -$98.0 billion) from a downwardly revised $78.9 billion (from -$78.2 billion) in November. December exports were $7.1 billion less than November exports while December imports were $12.4 billion more than November imports.
    • The key takeaway from the report is that the big jump in imports was presumably a function of trying to get ahead of possible tariff actions.
  • Weekly crude oil inventories increased by 8.65 mln barrels after increasing by 3.46 mln barrels a week ago.
• Commodities:
  • WTI crude: -2.3% to $71.11/bbl
  • Gold: +0.7% to $2893.80/ozt
  • Copper: +1.6% to $4.44/lb
• Currencies:
  • EUR/USD: +0.3% to 1.0404
  • GBP/USD: +0.2% to 1.2503
  • USD/CNH: UNCH at 7.2821
  • USD/JPY: -1.1% to 152.57
• The Day Ahead:
  • 8:30 ET: Preliminary Q4 Productivity (Briefing.com consensus 0.8%; prior 2.2%) and Unit Labor Costs (Briefing.com consensus 2.6%; prior 0.8%), weekly Initial Claims (Briefing.com consensus 213,000; prior 207,000), and Continuing Claims (prior 1.858 mln)
  • 10:30 ET: Weekly natural gas inventories (prior -321 bcf)