Bond Market Update

Treasuries Reverse from Multi-Month Highs

• U.S. Treasuries had a volatile showing on Tuesday, as early strength gave way to an intraday pullback from levels last seen in October. The trading day started with strong gains in shorter tenors and a slight uptick in the long bond after 25% tariffs on imports from Canada and Mexico and an additional 10% tariff on imports from China came into effect. Canada and China were quick to announce retaliatory duties while Mexico also signaled its intention to respond later in the day. The early strength in Treasuries coincided with a weak open in equities with both markets seeing a continuation of the early trend until the S&P 500 approached its 200-day moving average (5726) in late morning trade. The rest of the session saw a rebound in equities and a pullback in Treasuries with the long bond pacing the reversal. The backpedaling continued into the afternoon, resulting in a finish on session lows. Crude oil followed risk, revisiting its November low (66.61) in the late morning before recovering the bulk of its loss. The greenback struggled throughout the day, sending the U.S. Dollar Index lower by 0.9% to 105.76, a level last seen in early December.
• Yield Check:
  • 2-yr: -2 bps to 3.96%
  • 3-yr: -1 bp to 3.95%
  • 5-yr: +1 bp to 4.00%
  • 10-yr: +3 bps to 4.21%
  • 30-yr: +5 bps to 4.52%

• News:
  • Ukraine's President Zelensky regrets Friday's confrontation at the White House and is ready to sign the minerals deal, according to Axios.
  • New York Fed President (FOMC voter) Williams said that policy is in a good place, but tariffs might increase inflation, according to Reuters.
  • OPEC+ plans to gradually increase its output on April 1, but it reserves the right to change its plan if there is a significant shift in market conditions.
  • European Commission President von der Leyen proposed that the EU borrow EUR150 bln as part of an EUR800 bln military expenditure fund.
  • Japan's Prime Minister Ishiba and Finance Minister Kato pushed back against President Trump's suggestion that Japan is looking to devalue its currency intentionally.
  • The latest policy Minutes from the Reserve Bank of Australia cautioned against expectations for additional rate cuts since the return to target inflation is uncertain.
  • Japan's January Unemployment Rate rose to 2.5% from 2.4% (expected 2.4%) and jobs/applications ratio rose to 1.26 from 1.25 (expected 1.25). Q4 Capital Spending was down 0.2% yr/yr (expected 4.9%; last 8.1%). February Monetary Base was down 1.9% yr/yr (expected -0.5%; last -0.7%). February Household Confidence dipped to 35.0 from 35.2 (expected 35.2).
  • South Korea's January Industrial Production was down 2.3% m/m (expected -3.1%; last 3.9%), falling 4.1% yr/yr (expected -2.0%; last 4.4%). January Retail Sales were down 0.6% m/m (last 0.2%) and January Service Sector Output was down 0.8% m/m (last 1.1%). February Manufacturing PMI hit 49.9 (last 50.3).
  • Australia's Q4 Current Account deficit reached AUD12.5 bln (expected deficit of AUD11.8 bln; last deficit of AUD13.9 bln). Q4 Net Exports Contribution was up 0.2% (expected -0.1%; last 0.1%). January Retail Sales rose 0.3% m/m, as expected (last -0.1%).
  • New Zealand's January Building Consents increased 2.6% m/m (last -5.6%).
  • Eurozone's January Unemployment Rate remained at 6.2% (expected 6.3%).
  • France's January government budget deficit reached EUR17.3 bln (last deficit of EUR156.3 bln).
  • Italy's January Unemployment Rate dipped to 6.3% from 6.4% (expected 6.2%).
  • Spain's February Unemployment decreased by 6,000 (expected 45,200; last 38,700).
• Commodities:
  • WTI crude: +0.1% to $68.30/bbl
  • Gold: +0.6% to $2919.60/ozt
  • Copper: -0.9% to $4.56/lb
• Currencies:
  • EUR/USD: +1.1% to 1.0607
  • GBP/USD: +0.7% to 1.2792
  • USD/CNH: -0.6% to 7.2600
  • USD/JPY: -0.2% to 149.24
• The Day Ahead:
  • 7:00 ET: Weekly MBA Mortgage Index (prior -1.2%)
  • 8:15 ET: February ADP Employment Change (Briefing.com consensus 145,000; prior 183,000)
  • 9:45 ET: Final February S&P Global U.S. Services PMI (prior 49.7)
  • 10:00 ET: February ISM Services (Briefing.com consensus 53.0%; prior 52.8%) and January Factory Orders (Briefing.com consensus 1.3%; prior -0.9%)
  • 10:30 ET: Weekly crude oil inventories (prior -2.33 mln)
  • 14:00 ET: March Beige Book