Bond Market Update

Monday Dip Reversed

• U.S. Treasuries climbed on Tuesday, sending yields back to their opening levels from Monday. The market faced some early pressure after a night that saw gains in global equity markets amid a light slate of economic data. The modestly lower start briefly lifted yields back to yesterday's highs, but a rebound began developing shortly after today's initial batch of data, even though it included stronger-than-expected growth in February Housing Starts (1.501 mln; Briefing.com consensus 1.385 mln) and a reminder of some stubborn inflation in Import/Export Prices for February. The rebound continued through the release of an above-consensus Industrial Production (0.7%; Briefing.com consensus 0.2%) report for February, with the market extending to fresh highs after a strong $13 bln 20-yr bond reopening. President Trump spoke with Russia's President Putin, agreeing to start negotiations toward a lasting peace in Ukraine. Crude oil gave back its overnight gain, turning negative for the week, while the U.S. Dollar Index dipped 0.1% to 103.25.
• Yield Check:
  • 2-yr: -1 bp to 4.04%
  • 3-yr: -2 bps to 4.01%
  • 5-yr: -3 bps to 4.07%
  • 10-yr: -3 bps to 4.28%
  • 30-yr: -2 bps to 4.58%

• News:
  • The Atlanta Fed's GDPNow forecast for Q1 GDP was increased to -1.8% from -2.1% in the previous estimate.
  • President Trump said that China's President Xi will visit in the near future.
  • The Bank of Japan will meet overnight but a rate hike is not expected at this time.
  • Japanese brokerages outperformed after Berkshire Hathaway increased its stake in the group.
  • Germany's parliament agreed to a reform of debt rules, as expected. 
  • Bank of America reported that investors are cutting U.S. equity exposure at record levels, reallocating to eurozone stocks.
  • Japan's January Tertiary Industry Activity Index fell to -10.0 from 7.4.
  • Hong Kong's February Unemployment Rate rose to 3.2% from 3.1%.
  • Eurozone's March ZEW Economic Sentiment rose to 39.8 from 24.2 (expected 43.6). January trade surplus reached EUR1.0 bln (expected surplus of EUR14.0 bln; last surplus of EUR15.4 bln).
  • Germany's March ZEW Economic Sentiment rose to 51.6 from 26.0 (expected 48.1) and ZEW Current Conditions ticked up to -87.6 from -88.5 (expected -80.5).
  • Italy's January trade deficit reached EUR264 mln (expected surplus of EUR5.15 bln; last surplus of EUR5.82 bln).
  • Spain's January trade deficit reached EUR6.19 bln (last deficit of EUR4.12 bln).
• Today's Data:
  • Total housing starts increased 11.2% month-over-month in February to a seasonally adjusted annual rate of 1.501 million (Briefing.com consensus 1.385 million), with single-unit starts up 11.4%. Building permits were down 1.2% month-over-month to a seasonally adjusted annual rate of 1.456 million. Single-unit permits were down 0.2%.
    • The key takeaway from the report is that starts activity was bolstered by the return of better weather, which was reflected in the 18.3% increase in housing starts in the South region (they were down 23.0% in January).
  • February import prices were up 0.4% month-over-month following an upwardly revised 0.4% increase (from 0.3% in January). Excluding fuel, import prices increased 0.3% on the heels of a 0.1% increase in January. Export prices were up 0.1% month-over-month after a 1.3% increase in January. Excluding agricultural products, export prices also rose 0.1% month-over-month following a 1.5% jump in January.
    • The key takeaway from the report is the inflationary shift in the year-over-year readings. Nonfuel import prices were up 2.0% versus down 0.6% for the 12 months ending in February 2024. Non-agricultural export prices increased 2.2% year-over-year versus being down 1.2% for the 12 months ending in February 2024.
  • Total industrial production increased 0.7% month-over-month in January (Briefing.com consensus 0.2%) following a downwardly revised 0.3% increase (from 0.5%) in January. The capacity utilization rate jumped to 78.2% (Briefing.com consensus 77.7%) from a downwardly revised 77.7% (from 77.8%) in January. Total industrial production increased 1.4% yr/yr while the capacity utilization rate was 1.4 percentage points below its long-run average.
    • The key takeaway from the report is that there was a solid increase in manufacturing output that was led by an 8.5% jump in the index for motor vehicles and parts, which likely had some tariff frontrunning involved. Motor vehicle assemblies increased 11.5% month-over-month to a seasonally adjusted annual rate of 10.35 million.
  • $13 bln 20-year Treasury bond reopening results (prior 12-auction average):
    • High yield: 4.632% (4.567%).
    • Bid-to-cover: 2.78 (2.60).
    • Indirect bid: 68.8% (70.2%).
    • Direct bid: 22.4% (17.0%).
• Commodities:
  • WTI crude: -1.2% to $66.78/bbl
  • Gold: +1.1% to $3040.30/ozt
  • Copper: +0.6% to $5.00/lb
• Currencies:
  • EUR/USD: +0.3% to 1.0948
  • GBP/USD: +0.2% to 1.3009
  • USD/CNH: UNCH at 7.2273
  • USD/JPY: UNCH at 149.19
• The Day Ahead:
  • 7:00 ET: Weekly MBA Mortgage Index (prior 11.2%)
  • 10:30 ET: Weekly crude oil inventories (prior +1.45 mln)
  • 14:00 ET: March FOMC Rate Decision (Briefing.com consensus 4.25-4.50%; prior 4.25-4.50%)
  • 16:00 ET: January Net Long-Term TIC Flows (prior $72.0 bln)