Bond Market Update

Opening Losses Reclaimed

• U.S. Treasuries finished Tuesday on a higher note after overcoming a modestly lower start. The trading day started in negative territory after a night that saw an improvement in risk sentiment and pressure on other sovereign debt. Treasuries started the day with relative weakness in longer tenors, but the entire complex began bouncing immediately after the cash start, followed by continued gains into the afternoon. Economic data released today was supportive of the advance as both February New Home Sales (676,000; Briefing.com consensus 680,000) and March Consumer Confidence (92.9; Briefing.com consensus 94.2) missed expectations. Session highs were reached in the early afternoon with the market staying just below those levels after today's strong $69 bln 2-yr note sale. Today's intraday rebound returned the 30-yr yield back below its 50-day moving average (4.693%) while the 5-yr yield returned below its 200-day moving average (4.074%). Crude oil gave back some of yesterday's gain while the U.S. Dollar Index fell 0.2% to 104.08.
• Yield Check:
  • 2-yr: -3 bps to 4.00%
  • 3-yr: -4 bps to 3.98%
  • 5-yr: -4 bps to 4.06%
  • 10-yr: -2 bps to 4.31%
  • 30-yr: UNCH at 4.66%

• News:
  • The U.S. and Russia announced the results of a meeting in Saudi Arabia aimed at establishing durable peace in Ukraine.
  • President Trump wants a debt ceiling increase to be included in tax reform legislation, according to Politico.
  • President Trump is considering a two-step tariff approach, according to FT.
  • Indonesia's rupiah fell to levels not seen since 1998 against the dollar, prompting speculation about an intervention from Bank Indonesia.
  • China's stimulus plans may include spending on services, according to FT.
  • Japan's January BoJ Core CPI was up 2.2% yr/yr, as expected (last 2.2%). 
  • South Korea's March Consumer Confidence fell to 93.4 from 95.2.
  • Hong Kong's February trade deficit reached $36.3 bln (last surplus of $2.1 bln) as imports rose 11.8% m/m (last 0.5%) and exports grew 15.4% m/m (last 0.1%).
  • Germany's March ifo Business Climate Index rose to 86.7 from 85.3 (expected 86.8). March Current Assessment rose to 85.7 from 85.0 (expected 85.5; last 85.0) and Business Expectations rose to 87.7 from 85.6 (expected 87.9).
  • Spain's February PPI was up 6.6% yr/yr (last 2.6%).
• Today's Data:
  • The Conference Board's Consumer Confidence Index dropped to 92.9 in March (Briefing.com consensus 94.2) from an upwardly revised 100.1 (from 98.3) in February. This was fourth straight month that consumer confidence declined.
    • The key takeaway from the report is that the drop in confidence was guided primarily by the decline in consumers' outlook, which was driven by worries about inflation and future employment prospects, the latter of which hit a 12-year low. This can be a combination for a pullback in discretionary spending.
  • New home sales increased 1.8% month-over-month in February to a seasonally adjusted annual rate of 676,000 units (Briefing.com consensus 680,000) from an upwardly revised 664,000 (from 657,000) in January. On a year-over-year basis, new home sales were up 5.1%.
    • The key takeaway from the report is that new home sales in February were aided by the drop in mortgage rates, yet affordability constraints remained a headwind as sales of higher-priced homes accounted for a smaller percentage of new home sales in February than the prior month.
  • The FHFA Housing Price Index was up 0.2% in January after increasing a revised 0.5% (from 0.4%) in December.
  • The S&P Case-Shiller Home Price Index was up 4.7% in January (Briefing.com consensus 4.6%) after increasing 4.5% in December.
  • $69 bln 2-year Treasury note auction results (prior 12-auction average):
    • High yield: 3.984% (4.339%).
    • Bid-to-cover: 2.66 (2.65).
    • Indirect bid: 75.8% (69.3%).
    • Direct bid: 13.6% (18.1%).
• Commodities:
  • WTI crude: -0.2% to $68.99/bbl
  • Gold: +0.4% to $3026.40/ozt
  • Copper: +2.6% to $5.21/lb
• Currencies:
  • EUR/USD: UNCH at 1.0800
  • GBP/USD: +0.2% to 1.2946
  • USD/CNH: UNCH at 7.2654
  • USD/JPY: -0.5% to 149.88
• The Day Ahead:
  • 7:00 ET: Weekly MBA Mortgage Index (prior -6.2%)
  • 8:30 ET: February Durable Orders (Briefing.com consensus -1.2%; prior 3.1%) and Durable Orders ex-transport (Briefing.com consensus 0.1%; prior 0.0%)
  • 10:30 ET: Weekly crude oil inventories (prior +1.75 mln)
• Treasury Auctions:
  • 13:00 ET: $70 bln 5-yr Treasury note auction results