Bond Market Update

Strong Q1 Gains Locked In

• U.S. Treasuries finished March on a largely flat note after reversing from a sharply higher start. The trading day started with solid gains across the curve after a night of weakness in global equity markets as participants remained skittish ahead of Wednesday's implementation of tariffs. There was also some added uncertainty about the final form of the tariffs after The Wall Street Journal report that the Trump administration may broaden the tariffs and impose a universal 20% duty on all imports instead of using an individualized approach. Late in the afternoon, the White House pushed back, saying that the goal is to announce tariffs based on individual countries. The firmly higher start pressured yields on the 5-yr note and shorter tenors toward their lowest levels of the month while the 10-yr yield slid back below its 200-day moving average (4.223%). Treasuries held near their starting levels during the initial hour of trade but then embarked on a slow daylong pullback that took place as equities climbed off their opening lows. The intraday reversal returned the 10-yr yield back above its 200-day moving average while the 2-yr yield returned to unchanged for the day. Treasuries ended the month with modest gains in the 5-yr note and shorter tenors, but the entire complex had a strong showing in Q1 with the belly leading the way. Crude oil rallied past its 50-day moving average (70.50) to its highest level in five weeks after President Trump threatened Iran with military action if a nuclear deal is not reached. The U.S. Dollar Index rose 0.2% to 104.22, narrowing its March loss to 3.1%.
• Yield Check:
  • 2-yr: UNCH at 3.91% (-9 bps in March; -33 bps in Q1)
  • 3-yr: +1 bp to 3.91% (-7 bps in March; -37 bps in Q1)
  • 5-yr: UNCH at 3.98% (-5 bps in March; -40 bps in Q1)
  • 10-yr: -1 bp to 4.25% (+2 bps in March; -32 bps in Q1)
  • 30-yr: -2 bps to 4.61% (+9 bps in March; -18 bps in Q1)

• News:
  • Marine Le Pen will be unable to run for president of France in 2027 after a court found her guilty of misappropriating EU funds. She received a two-year prison sentence and a two-year probation, but she is expected to appeal the verdict.
  • British Prime Minister Starmer said that his discussions with President Trump about a trade deal have been productive.
  • European Central Bank policymaker Panetta called for caution in adjusting interest rates.
  • CK Hutchinson will reportedly not go through with the deal to sell Panama Canal assets to BlackRock this week.
  • The People's Bank of China issued CNY500 bln worth of special sovereign bonds to recapitalize a few tier-1 banks.
  • The Reserve Bank of Australia will meet overnight, but the likelihood of a rate cut is seen as low.
  • China's March Manufacturing PMI hit 50.5 (expected 50.4; last 50.2) and Non-Manufacturing PMI hit 50.8 (expected 50.5; last 50.4).
  • Japan's February Industrial Production rose 2.5% m/m (expected 1.9%; last -1.1%), February Retail Sales grew 1.4% yr/yr (expected 2.4%; last 4.4%), February Housing Starts rose 2.4% yr/yr (expected -2.3%; last -4.6%) and Construction Orders fell 3.3% yr/yr (last 12.2%).
  • South Korea's February Industrial Production was up 1.0% m/m (expected 0.8%; last -2.8%), rising 7.0% yr/yr (expected 2.0%; last -4.7%). February Retail Sales rose 1.5% m/m (last -0.7%) and Service Sector Output rose 0.5% m/m (last -0.9%).
  • Hong Kong's February Retail Sales were down 13.0% yr/yr (last -3.2%).
  • Australia's February Housing Credit was up 0.4% m/m (last 0.4%) and Private Sector Credit was up 0.5% m/m, as expected (last 0.5%). March ANZ Business Confidence dipped to 57.5 from 58.4 and March MI Inflation Gauge was up 0.7% m/m (last -0.2%).
  • Germany's February Retail Sales rose 0.8% m/m (expected 0.0%; last 0.7%), growing 4.9% yr/yr (last 4.0%). February Import Price Index was up 0.3% m/m (expected 0.0%; last 1.1%), rising 3.6% yr/yr (last 3.1%). Flash March CPI was up 0.3% m/m, as expected (last 0.4%), rising 2.2% yr/yr, as expected (last 2.3%).
  • U.K.'s February Net Lending to Individuals reached GBP4.60 bln (expected GBP4.90 bln; last GBP5.95 bln) and February Mortgage Approvals reached 65,480 (expected 66,000; last 66,040). 
  • Italy's flash March CPI was up 0.4% m/m (expected 0.0%; last 0.2%), rising 2.0% yr/yr (expected 1.6%; last 1.6%).
  • Spain's January Current Account surplus reached EUR1.20 bln (last surplus of EUR1.67 bln).
• Today's Data:
  • The Chicago PMI hit 47.6 in March (Briefing.com consensus 45.3), up from 45.5 in February.
• Commodities:
  • WTI crude: +3.1% to $71.47/bbl
  • Gold: +1.2% to $3149.50/ozt
  • Copper: -2.0% to $5.04/lb
• Currencies:
  • EUR/USD: -0.1% to 1.0814
  • GBP/USD: -0.2% to 1.2912
  • USD/CNH: -0.1% to 7.2643
  • USD/JPY: +0.2% to 150.13
• The Day Ahead:
  • 9:45 ET: Final March S&P Global U.S. Manufacturing PMI (prior 49.8)
  • 10:00 ET: February Construction Spending (Briefing.com consensus 0.4%; prior -0.2%), February job openings (prior 7.740 mln), and March ISM Manufacturing Index (Briefing.com consensus 49.8%; prior 50.3%)