Bond Market Update

Friday Slide Reverses Recent Gains

• U.S. Treasuries retreated on Friday, though the sharp slide merely returned the Treasury complex to little changed for the week. The trading day started with modest losses and a sideways drift through the first 90 minutes of trade, but the market faced additional pressure after the preliminary reading of the University of Michigan's Consumer Sentiment for March (57.9; Briefing.com consensus 65.6; prior 64.7) showed an increase in year-ahead (to 4.9% from 4.3%) and five-year (to 3.9% from 3.5%) inflation expectations. The 10-yr note and the long bond were quick to bounce, rising to fresh highs as the day went on, while shorter tenors remained pressured with the 2-yr note sliding into the afternoon. The likelihood of a weekend government shutdown appears to be greatly diminished after Senate Minority Leader Schumer indicated he plans to vote in favor of the GOP's spending bill. Crude oil built on yesterday's advance, turning slightly higher for the week, while the U.S. Dollar Index dipped 0.1% to 103.71, shedding 0.2% for the week.
• Yield Check:
  • 2-yr: +7 bps to 4.02% (+2 bps this week)
  • 3-yr: +6 bps to 4.00% (-1 bp this week)
  • 5-yr: +5 bps to 4.08% (-1 bp this week)
  • 10-yr: +3 bps to 4.31% (-1 bp this week)
  • 30-yr: +2 bps to 4.62% (UNCH this week)

• News:
  • Mark Carney was sworn in as Canada's prime minister.
  • The People's Bank of China reiterated its moderately loose stance of monetary policy, adding that sound monetary conditions will be created for the economy.
  • South Korea's trade minister is visiting the U.S. to discuss tariffs and cooperation.
  • The leader of Germany's Green party said that he does not trust CDU leader Merz, who is likely to be Germany's next chancellor.
  • China's February New Loans reached CNY1.01 trln (expected CNY2.15 trln; last CNY5.13 trln). February outstanding loans grew 7.3% yr/yr (expected 7.4%; last 7.5%) and February total social financing reached CNY2.23 trln (expected CNY2.50 trln; last CNY5.13 trln).
  • South Korea's February Import Pirce Index was up 4.6% yr/yr (last 6.6%) and Export Price Index was up 6.3% yr/yr (last 8.5%).
  • New Zealand's February Business PMI hit 53.9 (last 51.4) and February FPI was down 0.5% m/m (last 1.9%).
  • Germany's February CPI was up 0.4% m/m, as expected (last -0.2%), rising 2.3% yr/yr, as expected (last 2.3%).
  • U.K.'s January GDP contracted 0.1% m/m (expected 0.1%; last 0.4%) but was up 1.0% yr/yr (expected 1.2%; last 1.5%). January Construction Output was down 0.2% m/m (expected -0.1%; last -0.2%). rising 0.2% yr/yr (expected 0.4%; last 1.5%). January Industrial Production was down 0.9% m/m (expected -0.1%; last 0.0%), falling 1.1% yr/yr (expected -0.4%; last -1.4%). Inflation Expectations rose to 3.4% from 3.0%.
  • France's February CPI was unchanged m/m (expected 0.2%; last 0.1%), rising 0.8% yr/yr, as expected (last 1.7%).
  • Italy's January Industrial Production was up 3.2% m/m (expected 1.5%; last -2.7%) but down 0.6% yr/yr (last -6.9%).
  • Spain's February CPI was up 0.4% m/m, as expected (last 0.2%), rising 3.0% yr/yr, as expected (last 2.9%). February Core CPI was up 2.2% yr/yr (expected 2.1%; last 2.4%).
• Today's Data:
  • The preliminary University of Michigan Index of Consumer Sentiment for March dropped to 57.9 (Briefing.com consensus 65.6) from the final reading of 64.7 for February, marking the third straight drop in sentiment. In the same period a year ago, the index stood at 79.4.
    • The key takeaway from the report is that the weakening in sentiment cut across groups by age, income, wealth, political affiliations, and geographic regions, with inflation concerns and policy uncertainty jumping out as key factors for the drop in sentiment.
• Commodities:
  • WTI crude: +1.0% to $67.19/bbl
  • Gold: +0.3% to $3001.00/ozt
  • Copper: UNCH at $4.90/lb
• Currencies:
  • EUR/USD: +0.3% to 1.0881
  • GBP/USD: -0.2% to 1.2928
  • USD/CNH: -0.1% to 7.2377
  • USD/JPY: +0.5% to 148.52
• The Week Ahead:
  • Monday: March Empire State Manufacturing (prior 5.7), February Retail Sales (prior -0.9%), and Retail Sales ex-auto (prior -0.4%) at 8:30 ET; and January Business Inventories (prior -0.2%) and March NAHB Housing Market Index (prior 42) at 10:00 ET
  • Tuesday: February Housing Starts (prior 1.366 mln), Building Permits (prior 1.483 mln), February Import/Export Prices at 8:30 ET; February Industrial Production (prior 0.5%) and Capacity Utilization (prior 77.8%) at 9:15 ET; and $13 bln 20-yr Treasury bond reopening results at 13:00 ET
  • Wednesday: Weekly MBA Mortgage Index (prior 11.2%) at 7:00 ET; weekly crude oil inventories (prior +1.45 mln) at 10:30 ET; March FOMC Rate Decision (prior 4.25-4.50%) at 14:00 ET; and January Net Long-Term TIC Flows (prior $72.0 bln) at 16:00 ET
  • Thursday: Weekly Initial Claims (prior 220,000), Continuing Claims (prior 1.870 mln), Q4 Current Account Balance (prior -$131.4 bln), and March Philadelphia Fed Survey (prior 18.1) at 8:30 ET; February Existing Home Sales (prior 4.08 mln) and February Leading Indicators (prior -0.3%) at 10:00 ET; and weekly natural gas inventories (prior -62 bcf) at 10:30 ET
  • Friday: Nothing of note