Bond Market Update

Treasuries Slip Despite Decelerating CPI

• U.S. Treasuries retreated on Wednesday even though the CPI (0.2%; Briefing.com consensus 0.3%) and Core CPI (0.2%; Briefing.com consensus 0.3%) report was a bit cooler than expected. Treasuries started the day with modest losses, seeing a brief bounce in reaction to the February CPI report, which showed a deceleration in the yr/yr CPI (to 2.8% from 3.0%) and Core CPI (to 3.1% from 3.3%) rates. However, the post-data bounce was reversed immediately, resulting in a slide to fresh lows. The rest of the session saw a drift between yesterday's closing levels and today's morning lows, with the market holding steady through a solid $39 bln 10-yr note reopening, which followed yesterday's soft 3-yr note sale. Crude oil distanced itself from its lowest level of the year while the U.S. Dollar Index rose 0.3% to 103.62.
• Yield Check:
  • 2-yr: +5 bps to 3.99%
  • 3-yr: +5 bps to 3.99%
  • 5-yr: +4 bps to 4.08%
  • 10-yr: +3 bps to 4.32%
  • 30-yr: +3 bps to 4.63%

• News:
  • The Bank of Canada lowered its policy rate by 25 basis points, as expected.
  • The U.S. ruled out an exemption from tariffs for Australian steel and aluminum, but Australia is not seeking to impose retaliatory tariffs at this time
  • Portugal is headed for an early election after the country's government lost a confidence vote.
  • Toyota will grant its employees their full wage hike demand, making for the fourth year in a row that the company matched demands.
  • Japan's February PPI was unchanged m/m (expected -0.1%; last 0.3%), rising 4.0% yr/yr, as expected (last 4.2%). Q1 BSI Large Manufacturing Conditions fell to -2.4 from 6.3 (expected 6.5).
  • South Korea's February Unemployment Rate fell to 2.7% from 2.9%.
  • India's February CPI was up 3.61% yr/yr (expected 4.00%; last 4.31%). January Industrial Production rose 5.0% yr/yr (expected 3.5%; last 3.2%) and Manufacturing Output rose 5.5% m/m (last 3.0%).
  • New Zealand's February Electronic Card Retail Sales rose 0.3% m/m (last -1.6%) but were down 4.2% yr/yr (last -0.5%).
  • Spain's January Retail Sales grew 2.2% yr/yr (last 4.0%).
• Today's Data:
  • Total CPI was up 0.2% month-over-month in February (Briefing.com consensus 0.3%) following a 0.5% increase in January. Core CPI, which excludes food and energy, was also up 0.2% month-over-month (Briefing.com consensus 0.3%) following a 0.4% increase in January. On a year-over-year basis, total CPI was up 2.8%, versus 3.0% in January, and core CPI was up 3.1%, versus 3.2% in January.
    • The key takeaway from the report is that inflation overall is still sticking comfortably above the Fed's 2.0% target, and now with tariff actions ramping up -- and "reciprocal tariffs" coming April 2 -- confidence has been shaken that future inflation reports will convey undeniably pleasing inflation data.
  • The weekly MBA Mortgage Index rose 11.2% to follow last week's 20.4% increase. The Purchase Index was up 7.0% while the Refinance Index increased 16.2%.
  • Weekly crude oil inventories increased by 1.45 mln barrels after increasing by 3.61 mln barrels a week ago.
  • The Treasury Budget for February showed a deficit of $307.0 billion compared to a deficit of $296.3 billion in the same period a year ago. The February deficit resulted from outlays ($603.4 billion) exceeding receipts ($296.4 billion). The Treasury Budget data are not seasonally adjusted so the February deficit cannot be compared to the January deficit of $128.6 billion.
    • The key takeaway from the report is that the deficit in early fiscal 2025 is 38.5% greater than the deficit for the same period in fiscal 2024 with net interest outlays ($396 billion) nearly equal to outlays for national defense ($399 billion) and health ($399 billion).
  • $39 bln 10-year Treasury note reopening results (prior 12-auction average):
    • High yield: 4.310% (4.293%).
    • Bid-to-cover: 2.59 (2.53).
    • Indirect bid: 67.4% (67.6%).
    • Direct bid: 19.5% (17.6%).
• Commodities:
  • WTI crude: +2.1% to $67.70/bbl
  • Gold: +0.9% to $2946.50/ozt
  • Copper: +2.1% to $4.86/lb
• Currencies:
  • EUR/USD: -0.2% to 1.0886
  • GBP/USD: +0.2% to 1.2966
  • USD/CNH: +0.2% to 7.2399
  • USD/JPY: +0.4% to 148.31
• The Day Ahead:
  • 8:30 ET: February PPI (Briefing.com consensus 0.3%; prior 0.4%), Core PPI (Briefing.com consensus 0.3%; prior 0.3%), weekly Initial Claims (Briefing.com consensus 228,000; prior 221,000), and Continuing Claims (prior 1.897 mln)
  • 10:30 ET: Weekly natural gas inventories (prior -80 bcf)
• Treasury Auctions:
  • 13:00 ET: $22 bln 30-yr Treasury bond reopening results