Bond Market Update

Early Weakness Overcome

• U.S. Treasuries climbed on Thursday after overcoming early weakness that lifted yields on longer tenors to their highest levels in nearly three weeks. The trading day started with modest losses that were maintained through the release of the February PPI (0.0%; Briefing.com consensus 0.3%), even though the report was cooler than expected, showing a deceleration in yr/yr PPI (to 3.2% from 3.7%) and Core PPI (to 3.4% from 3.8%) rates. Treasuries followed their sideways start with an intraday rally that was encouraged by another poor showing from equities as the market showed ongoing concerns about growth and the impact of tariffs on the economy. The rally met a brief hiccup when the U.S. Treasury completed this week's mediocre note and bond auction slate with a weak 30-yr bond reopening, but Treasuries continued to fresh highs in late trade. Crude oil gave back yesterday's gain while the U.S. Dollar Index rose 0.2% to 103.84.
• Yield Check:
  • 2-yr: -4 bps to 3.95%
  • 3-yr: -5 bps to 3.94%
  • 5-yr: -5 bps to 4.03%
  • 10-yr: -4 bps to 4.27%
  • 30-yr: -4 bps to 4.60%

• News:
  • Bank of France lowered its domestic growth forecast for 2025 to 0.7% from 0.9% and cut its inflation outlook to 1.3% from 1.6%.
  • European Central Bank policymaker Nagel said that the EU is right to respond to U.S. tariffs and that a trade could tip Germany back into a recession.
  • China Securities Daily speculated that the yuan could appreciate due to rising asset demand.
  • Morgan Stanley lowered its view of Australian stocks to Underweight.
  • Hong Kong's Q4 PPI was up 4.2% yr/yr (last 3.2%) and Q4 Industrial Production was up 0.9% yr/yr (last -0.1%).
  • Australia's January Building Approvals rose 6.3% m/m, as expected (last 0.7%) and Private House Approvals rose 1.1% m/m, as expected (last -3.0%). MI Inflation Expectations slowed to 3.6% from 4.6%.
  • New Zealand's January External Migration & Visitors increased 13.4% m/m (last 12.2%).
  • Eurozone's January Industrial Production was up 0.8% m/m (expected 0.5%; last -0.4%) and was flat yr/yr (expected -0.9%; last -1.5%). 
  • Italy's Q4 Unemployment Rate remained at 6.1% (expected 6.2%).
  • Swiss February PPI was up 0.3% m/m (expected 0.2%; last 0.1%) but down 0.1% yr/yr (last -0.3%).
• Today's Data:
  • Total PPI was unchanged month-over-month (Briefing.com consensus 0.3%) following an upwardly revised 0.6% increase (from 0.4%) in January, and core PPI, which excludes food and energy, was down 0.1% month-over-month (Briefing.com consensus 0.3%) following an upwardly revised 0.5% increase (from 0.3%) in January. On a year-over-year basis, total PPI was up 3.2%, versus 3.7% in January, and core PPI was up 3.4% versus 3.8% in January.
    • The key takeaway from the report is comparable to the key takeaway from the CPI report: inflation at the wholesale level, while improving, is still too high, and with the tariff battles heating up, there is concern that the disinflation isn't going to persist.
  • Initial jobless claims for the week ending March 8 decreased by 2,000 to 220,000 (Briefing.com consensus 228,000). Continuing jobless claims for the week ending March 1 decreased by 27,000 to 1.870 million.
    • The key takeaway from the report is that initial jobless claims -- a leading indicator -- held steady at relatively low levels that are consistent with an otherwise sound labor market.
  • Weekly natural gas inventories decreased by 62 bcf after decreasing by 80 bcf a week ago.
  • $22 bln 30-year Treasury bond reopening results (prior 12-auction average):
    • High yield: 4.623% (4.484%).
    • Bid-to-cover: 2.37 (2.43).
    • Indirect bid: 60.5% (66.5%).
    • Direct bid: 22.7% (18.5%).
• Commodities:
  • WTI crude: -1.7% to $66.55/bbl
  • Gold: +1.6% to $2993.10/ozt
  • Copper: +0.8% to $4.90/lb
• Currencies:
  • EUR/USD: -0.3% to 1.0855
  • GBP/USD: -0.1% to 1.2951
  • USD/CNH: +0.1% to 7.2461
  • USD/JPY: -0.3% to 147.74
• The Day Ahead:
  • 10:00 ET: Preliminary March University of Michigan Consumer Sentiment (Briefing.com consensus 65.6; prior 64.7)