Bond Market Update

Growth Concerns Offer Support

• U.S. Treasuries finished the week with solid gains across the curve, turning the 5-yr note and shorter tenors positive for the week. The trading day started on a positive note after a night that featured an ongoing focus on reciprocal tariffs that will be coming into effect on April 2. The early gains were extended after the Personal Income/Outlays report for February included a combination of above-consensus growth in Personal Income (0.8%; Briefing.com consensus 0.4%), below-consensus Personal Spending (0.4%; Briefing.com consensus 0.6%), and an acceleration in the yr/yr core PCE rate (to 2.8% from 2.7%). The report prompted the Atlanta Fed to revise its GDPNow forecast for Q1 GDP to -2.8% from -1.8%, echoing the market's ongoing growth concerns. Treasuries continued climbing into the afternoon, finishing on their highs. The rally sent the 5-yr yield back below its 200-day moving average (4.069%) to its lowest settlement in nearly three weeks while the 10-yr yield finished the day just above the 200-day moving average of its own (4.223%). This week's outperformance in shorter tenors widened the 2s10s spread by five basis points to 35 bps. Crude oil narrowed this week's gain to just over $1/bbl while the U.S. Dollar Index fell 0.3% to 104.02, shedding 0.1% for the week.
• Yield Check:
  • 2-yr: -9 bps to 3.91% (-4 bps this week)
  • 3-yr: -10 bps to 3.90% (-3 bps this week)
  • 5-yr: -12 bps to 3.98% (-3 bps this week)
  • 10-yr: -11 bps to 4.26% (+1 bp this week)
  • 30-yr: -10 bps to 4.63% (+3 bps this week)

• News:
  • San Francisco Fed President Daly (non-voter) expects two rate cuts this year, according to Reuters.
  • The EU is preparing to offer concessions once reciprocal tariffs go into effect on April 2, according to FT.
  • European Central Bank policymaker De Guindos spoke favorably about inflation returning to target while Bank of England Governor Bailey said that inflation risks in the U.K. remain elevated.
  • Japan's Prime Minister Ishiba floated a plan to offer liquidity support to companies impacted by tariffs.
  • The Bank of Japan's summary of opinions from its March meeting showed that the central bank will need to downshift its accommodative stance to a neutral one.
  • Reserve Bank of Australia Governor Bullock warned against premature easing.
  • Australia will hold an election on May 3.
  • Japan's March Tokyo CPI was up 2.9% m/m (last 2.8%) and Tokyo Core CPI was up 2.4% yr/yr (expected 2.2%; last 2.2%).
  • Singapore's February Bank Lending reached SGD841.1 bln (last SGD836.3 bln).
  • Eurozone's March Business and Consumer Survey fell to 95.2 from 96.3 (expected 97.0).
  • Germany's April GfK Consumer Climate ticked up to -24.5 from -24.6 (expected -22.6). March Unemployment increased by 26,000 (expected 10,000; last 9,000) and March Unemployment Rate rose to 6.3% from 6.2% (expected 6.2%).
  • U.K.'s Q4 GDP was up 0.1% qtr/qtr, as expected (last 0.0%), growing 1.5% yr/yr (expected 1.4%; last 0.9%). Q4 Business Investment was up 1.8% yr/yr (expected -0.7%; last 5.6%). February Retail Sales rose 1.0% m/m (expected -0.5%; last 1.6%), increasing 2.2% yr/yr (expected 0.5%: last 0.6%). February Core Retail Sales were up 1.0% m/m (expected -0.5%; last 1.6%), rising 2.2% yr/yr (expected 0.4%; last 0.8%). January trade deficit reached GBP17.85 bln (expected deficit of GBP16.8 bln; last deficit of GBP19.7 bln).
  • France's flash March CPI was up 0.2% m/m (expected 0.3%; last 0.0%), rising 0.8% yr/yr (last 0.8%). February PPI was down 0.5% m/m (last 0.8%), falling 1.4% yr/yr (last -2.2%). February Consumer Spending was down 0.1% m/m (expected 0.3%; last -0.6%).
  • Italy's March Business Confidence fell to 86.0 from 86.9 (expected 87.5) and Consumer Confidence fell to 95.0 from 98.8. January Industrial Sales were up 3.8% m/m (last -2.7%), rising 1.7% yr/yr (last -7.2%).
  • Spain's March CPI was up 0.1% m/m (last 0.4%), rising 2.3% yr/yr (expected 2.6%; last 3.0%). March Core CPI was up 2.0% yr/yr (last 2.2%).
  • Swiss March KOF Leading Indicators rose to 103.9 from 102.6 (expected 102.5).
• Today's Data:
  • Personal income increased 0.8% month-over-month in February (Briefing.com consensus 0.4%) following a downwardly revised 0.7% increase (from 0.9%) in January. Personal spending rose 0.4% month-over-month (Briefing.com consensus 0.6%) following a downwardly revised 0.3% decline (from -0.2%) in January. The PCE Price Index was up 0.3% month-over-month, as expected, which left it up 2.5% year-over-year, unchanged from January. The core-PCE Price Index jumped 0.4% month-over-month (Briefing.com consensus 0.3%), which left it up 2.8% year-over-year versus an upwardly revised 2.7% (from 2.6%) in January.
    • The key takeaway from the report is that it was good on the income side, just okay on the spending side (real PCE up just 0.1%), and bad on the inflation side with the uptick in the core-PCE Price Index. That mixed complexion, which is apt to stir some stagflation angst as well, will keep the Fed in a wait-and-watch mode, especially with near-term price adjustments likely as the tariffs take hold.
  • The final University of Michigan Index of Consumer Sentiment for March dropped to 57.0 (Briefing.com consensus 57.9) from the preliminary reading of 57.9. The final reading for February was 64.7. In the same period a year ago, the index stood at 79.4.
    • The key takeaway from the report is that the Expectations Index has dropped more than 30% since November 2024. The decline in March featured a clear consensus across all demographic and political affiliations, citing worsening expectations for personal finances, business conditions, unemployment, and inflation.
• Commodities:
  • WTI crude: -0.8% to $69.34/bbl
  • Gold: +1.7% to $3113.40/ozt
  • Copper: +0.4% to $5.14/lb
• Currencies:
  • EUR/USD: +0.3% to 1.0826
  • GBP/USD: -0.1% to 1.2942
  • USD/CNH: +0.1% to 7.2690
  • USD/JPY: -0.7% to 149.93
• The Week Ahead:
  • Monday: March Chicago PMI (prior 45.5) at 9:45 ET
  • Tuesday: February Construction Spending (prior -0.2%) and March ISM Manufacturing Index (prior 50.3%) at 10:00 ET
  • Wednesday: Weekly MBA Mortgage Index (prior -2.0%) at 7:00 ET; March ADP Employment Change (prior 77,000) at 8:15 ET; February Factory Orders (prior 1.7%) at 10:00 ET; and weekly crude oil inventories (prior -3.34 mln) at 10:30 ET
  • Thursday: Weekly Initial Claims (prior 224,000), Continuing Claims (prior 1.856 mln), and February Trade Balance (prior -$131.4 bln) at 8:30 ET; March ISM Services (prior 53.5%) at 10:00 ET; and weekly natural gas inventories (prior +37 bcf) at 10:30 ET
  • Friday: March Nonfarm Payrolls (prior 151,000), Nonfarm Private Payrolls (prior 140,000), Average Hourly Earnings (prior 0.3%), Unemployment Rate (prior 4.1%), and Average Workweek (prior 34.1) at 8:30 ET