Bond Market Update

Recent Gains Moderated

• U.S. Treasuries finished Thursday with modest losses in most tenors after two days of solid gains across the curve and three days of gains in longer tenors. The trading day started with modest losses after a night that featured a limited slate of data/news, though a Bank of Japan policymaker said that the BoJ's policy rate should rise to 1.00% by the second half of this year and the Bank of England announced a 25-basis point rate cut to 4.50%, which was expected. Treasuries followed their opening retreat with an immediate bounce that found resistance once yields approached their closing levels from yesterday. The rest of the session saw a slow retreat to fresh lows, followed by a return toward the day's opening levels. Crude oil fell to a fresh low for the year while the U.S. Dollar Index inched up 0.1% to 107.69, remaining below its 50-day moving average (107.80).
• Yield Check:
  • 2-yr: +3 bps to 4.21%
  • 3-yr: +3 bps to 4.23%
  • 5-yr: +3 bps to 4.27%
  • 10-yr: +2 bps to 4.44%
  • 30-yr: +1 bp to 4.65%

• News:
  • Treasury Secretary Bessent said that President Trump's focus is to lower the 10-yr yield, not the fed funds rate, according to Bloomberg.
  • Japan's Prime Minister Ishiba will meet with President Trump this weekend.
  • Bank of Japan policymaker Tamura said that the neutral rate is at least around 1.0% and that the central bank needs to raise its policy rate to that level by the second half of this year.
  • Fitch affirmed South Korea's AA- rating with a Stable outlook.
  • British Prime Minister Starmer is reportedly seeking ways to boost his party's popularity.
  • Shipper Maersk reported solid results for Q4 but also said it does not expect the normalization of routes through the Red Sea in the near term.
  • South Korea's December Current Account surplus reached $12.37 bln (last surplus of $10.05 bln).
  • Australia's December trade surplus reached AUD5.085 bln (expected surplus of AUD6.520 bln; last surplus of AUD6.792 bln) as imports rose 5.9% m/m (last 1.4%) and exports rose 1.1% m/m (last 4.2%). Q4 NAB Quarterly Business Confidence fell to -4 from -2.
  • Eurozone's December Retail Sales fell 0.2% m/m (expected -0.1%; last 0.0%) but were up 1.9% yr/yr, as expected (last 1.6%).
  • Germany's December Factory Orders rose 6.9% m/m (expected 1.9%; last -5.4%).
  • Swiss January Unemployment Rate remained at 2.7%, as expected.
• Today's Data:
  • Fourth quarter productivity increased 1.2% (Briefing.com consensus 0.8%) following an upwardly revised 2.3% (from 2.2%) in the third quarter. Unit labor costs increased 3.0% (Briefing.com consensus 2.6%) following a downwardly revised 0.5% increase (from 0.8%) in the third quarter.
    • The key takeaway from the report is that the productivity is on the rise, which will help temper inflation pressures. The 1.8% annualized rate of productivity growth in the current business cycle (starting Q4 2019) is higher than the 1.5% rate of the previous business cycle (Q4 2007 through Q4 2019).
  • Initial jobless claims for the week ending February 1 increased by 11,000 to 219,000 (Briefing.com consensus 213,000). Continuing jobless claims for the week ending January 25 increased by 36,000 to 1.886 million.
    • The key takeaway from the report is that there simply hasn't been a material increase in initial jobless claims, which would suggest there is some real weakening in the labor market. Hiring activity might have slowed, but the layoff activity does not impart an indication that employers think the economy is on the brink of a meaningful slowdown.
  • Weekly natural gas inventories decreased by 174 bcf after decreasing by 321 bcf a week ago.
• Commodities:
  • WTI crude: -0.9% to $70.44/bbl
  • Gold: -0.6% to $2876.70/ozt
  • Copper: +0.2% to $4.45/lb
• Currencies:
  • EUR/USD: -0.1% to 1.0388
  • GBP/USD: -0.5% to 1.2438
  • USD/CNH: UNCH at 7.2846
  • USD/JPY: -0.8% to 151.39
• The Day Ahead:
  • 8:30 ET: January Nonfarm Payrolls (Briefing.com consensus 155,000; prior 256,000), Nonfarm Private Payrolls (Briefing.com consensus 163,000; prior 223,000), Average Hourly Earnings (Briefing.com consensus 0.3%; prior 0.3%), Unemployment Rate (Briefing.com consensus 4.1%; prior 4.1%), and Average Workweek (Briefing.com consensus 34.3; prior 34.3)
  • 10:00 ET: Preliminary February University of Michigan Consumer Sentiment (Briefing.com consensus 71.3; prior 71.1) and December Wholesale Inventories (Briefing.com consensus -0.5%; prior -0.2%)
  • 15:00 ET: December Consumer Credit (Briefing.com consensus $13.4 bln; prior -$7.5 bln)