Bond Market Update

Longer Tenors Deepen Pullback

• U.S. Treasuries are on course for a modestly lower start in longer tenors while the short end is expected to show some relative strength in early trade. The early weakness comes after a night that was busy in terms of economic reports and other news developments. President Trump delivered his joint address to Congress last evening, promising to balance the budget and implement tax cuts of $4.5 trillion over a decade. He also said that he received a letter from Ukraine's leader, seeking a return to the negotiating table. There is some renewed optimism on the tariff front after Commerce Secretary Lutnick said that tariffs on imports from Canada and Mexico could be reduced. Overseas, China's National People's Congress set a growth target for 2025 of about 5.0%, aiming for inflation around 2.0%, and a budget deficit of 4.0%, which was expected. Elsewhere, European debt is under heavy pressure with Germany's 10-yr bund yield jumping 20 basis points to 2.70%, its highest level in nearly 16 months, after Germany's major political parties agreed to relax borrowing rules, which will result in higher military spending. Crude oil is back near its lowest level of the year while the U.S. Dollar Index is down 0.7% at 104.97, returning to its 200-day moving average (105.01).
• Yield Check:
  • 2-yr: -1 bp to 3.95%
  • 3-yr: UNCH at 3.95%
  • 5-yr: +2 bps to 4.02%
  • 10-yr: +3 bps to 4.24%
  • 30-yr: +3 bps to 4.55%

• News:
  • The Chinese government is expected to offer various support to sectors like AI, electric vehicles, other new technologies, and the property sector.
  • CK Hutchinson will sell a 90% stake in ports on both sides of the Panama Canal to BlackRock for $19 bln.
  • Japan's trade minister is expected to visit Washington early next week.
  • Reserve Bank of New Zealand Governor Orr resigned unexpectedly.
  • China's February Caixin Services PMI hit 51.4 (expected 50.8; last 51.0).
  • Japan's final February Services PMI hit 53.7 (expected 53.1; last 53.0).
  • South Korea's Q4 GDP expanded 0.1% qtr/qtr, as expected (last 0.1%), growing 1.2% yr/yr, as expected (last 1.2%).
  • India's final February Services PMI hit 59.0 (expected 61.1; last 56.5).
  • Hong Kong's February Manufacturing PMI hit 49.0 (last 51.0).
  • Singapore's January Retail Sales rose 2.4% m/m (last -2.0%), increasing 4.5% yr/yr (last -2.9%).
  • Australia's final February Services PMI hit 50.8 (expected 51.4; last 51.2). February AIG Construction Index improved to -3.7 from -20.0 and AIG Manufacturing Index rose to -8.2 from -22.7. Q4 GDP grew 0.6% qtr/qtr, as expected (last 0.3%), expanding 1.3% yr/yr (expected 1.2%; last 0.8%).
  • Eurozone's final February Services PMI hit 50.6 (expected 50.7; last 51.3). January PPI was up 0.8% m/m (expected 0.3%; last 0.5%), rising 1.8% yr/yr (expected 1.4%; last 0.1%).
  • Germany's final February Services PMI hit 51.1 (expected 52.2; last 52.5).
  • U.K.'s final February Services PMI hit 51.0 (expected 51.1; last 50.8).
  • France's January Industrial Production was down 0.6% m/m (expected 0.5%; last -0.5%). Final February Services PMI hit 45.3 (expected 44.5; last 48.2).
  • Italy's final February Services PMI hit 53.0 (expected 50.9; last 50.4). Q4 GDP expanded 0.1% qtr/qtr (expected 0.0%; last 0.0%), growing 0.6% yr/yr (expected 0.5%; last 0.5%). January Retail Sales were down 0.4% m/m (expected 0.3%; last 0.6%) but up 0.9% yr/yr (last 0.6%).
  • Spain's final February Services PMI hit 56.2 (expected 55.4; last 54.9).
  • Swiss February CPI was up 0.6% m/m (expected 0.5%; last -0.4%), rising 0.3% yr/yr (last 0.4%).
• Commodities:
  • WTI Crude: -1.8% to $67.06/bbl
  • Gold: +0.2% to $2925.40/ozt
  • Copper: +4.7% to $4.769/lb
• Currencies:
  • EUR/USD: +0.7% to 1.0698
  • GBP/USD: +0.2% to 1.2816
  • USD/CNH: UNCH at 7.2542
  • USD/JPY: -0.2% to 149.44
• Data out Today:
  • 7:00 ET: Weekly MBA Mortgage Index (actual 20.4%; 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