Bond Market Update

Longer Tenors Extend Recent Losses

• U.S. Treasuries had a mixed showing on Thursday with longer tenors adding to their losses from the past two days while the short end outperformed, finishing in the green. The entire complex was on track for a lower start after a night that saw continued selling in global debt, including more weakness in Germany's bunds, which drove Germany's 10-yr yield to within a few basis points of its high from 2023. However, Treasury futures bounced about an hour ahead of the cash start with shorter tenors at the forefront of the move after the Challenger Job Cuts report for February (172,017; prior 49,795), which does not typically invite a reaction from the market, showed the largest total since the summer of 2020 with nearly half of the cuts coming from the public sector. The pre-open bounce had limited staying power, as Treasuries spent the first three hours of trade in a steady retreat. The next couple hours featured a bounce off lows alongside a weak showing from equities with the market fretting about growth and the potential for additional tariff-related surprises. Crude oil fell toward yesterday's low before recovering its loss while the U.S. Dollar Index fell 0.2% to 104.06.
• Yield Check:
  • 2-yr: -2 bps to 3.97%
  • 3-yr: -1 bp to 3.98%
  • 5-yr: +1 bp to 4.06%
  • 10-yr: +2 bps to 4.29%
  • 30-yr: +2 bps to 4.58%

• News:
  • The Atlanta Fed's GDPNow forecast for Q1 GDP was revised up to -2.4% from -2.8% in the previous estimate.
  • The European Central Bank lowered its interest rate corridor by 25 basis points, as expected.
  • The Bank of England's Decision Maker Panel survey for January showed no change in one-year (3.1%) and three-year (2.8%) CPI expectations.
  • European air carriers Lufthansa, Air France, and KLM reported strong quarterly results.
  • China Securities Times speculated that property rules in Shanghai and Beijing could be relaxed.
  • South Korea's February CPI was up 0.3% m/m (expected 0.2%; last 0.7%), rising 2.0% yr/yr (expected 2.0%; last 2.2%).
  • Australia's January Building Approvals rose 6.3% m/m (expected -0.1%; last 1.7%), increasing 9.1% yr/yr (expected 5.6%; last 10.1%). Private House Approvals were up 1.1% m/m (last -2.8%). January trade surplus reached AUD5.62 bln (expected surplus of AUD5.85 bln; last surplus of AUD4.92 bln) as imports dipped 0.3% m/m (last 5.9%) and exports rose 1.3% m/m (last 1.2%).
  • Eurozone's January Retail Sales were down 0.3% m/m (expected 0.1%; last 0.0%) but up 1.5% yr/yr (expected 1.9%; last 2.2%). February Construction PMI hit 42.7 (expected 45.4; last 45.4).
  • Germany's February Construction PMI hit 41.2 (last 42.5).
  • U.K.'s February Construction PMI hit 44.6 (expected 49.5; last 48.1).
  • France's February Construction PMI hit 39.8 (last 44.5).
  • Italy's February Construction PMI hit 48.2 (last 50.9).
  • Swiss February Unemployment Rate remained at 2.7%, as expected.
• Today's Data:
  • The January Trade Balance showed a large widening in the trade deficit to $131.4 billion (Briefing.com consensus -$93.5 billion) from an upwardly revised $98.1 billion (from -$98.4 billion) in December. January imports were $36.6 billion more than December imports while January exports were $3.3 billion more than December exports.
    • The key takeaway from the report is that efforts to get in front of expected tariff actions drove the huge increase in imports, which will be a drag on Q1 GDP forecasts.
  • Weekly initial jobless claims for the week ending March 1 decreased by 21,000 to 221,000 (Briefing.com consensus 234,000). Continuing jobless claims for the week ending February 22 increased by 42,000 to 1.897 million.
    • The key takeaway from the report is that the reduced level of initial claims -- a leading indicator -- will temper concerns for the time being about the labor market showing more pronounced signs of weakening.
  • Q4 productivity was upwardly revised to 1.5% (Briefing.com consensus 1.2%) from the advance estimate of 1.2%. Q4 unit labor costs were revised down to 2.2% (Briefing.com consensus 3.0%) from the advance estimate of 3.0%.
    • The key takeaway from the report is that both components had the right skew for market sentiment in that productivity was higher than previously reported while unit labor costs (an inflation gauge) were lower than previously reported, aided by the improved productivity.
  • Wholesale Inventories increased by 0.8% month-over-month in January (Briefing.com consensus 0.7%) after decreasing by a revised 0.4% (from -0.5%) in December.
  • Weekly natural gas inventories decreased by 80 bcf after decreasing by 261 bcf a week ago.
• Commodities:
  • WTI crude: +0.2% to $66.43/bbl
  • Gold: UNCH at $2926.00/ozt
  • Copper: UNCH at $4.80/lb
• Currencies:
  • EUR/USD: +0.1% to 1.0799
  • GBP/USD: UNCH at 1.2892
  • USD/CNH: +0.1% to 7.2439
  • USD/JPY: -0.7% to 147.81
• The Day Ahead:
  • 8:30 ET: February Nonfarm Payrolls (Briefing.com consensus 159,000; prior 143,000), Nonfarm Private Payrolls (Briefing.com consensus 145,000; prior 111,000), Average Hourly Earnings (Briefing.com consensus 0.3%; prior 0.5%), Unemployment Rate (Briefing.com consensus 4.0%; prior 4.0%), and Average Workweek (Briefing.com consensus 34.2; prior 34.1)
  • 15:00 ET: January Consumer Credit (prior $40.8 bln)