Bond Market Update

Bumpy Finish to Volatile Week

• U.S. Treasuries finished a volatile week with losses across the curve after giving back their brief post-NFP gains. The trading day started on a positive note, followed by an extension of the early gains after the Employment Situation report for February showed a headline total that was a bit below estimates (151,000; Briefing.com consensus 159,000) and included a sharp increase in the U6 unemployment rate (to 8.0% from 7.5%) to a level not seen since late 2021. In sum, the report was not strong enough to calm the market's recent concerns about growth. Treasuries rallied in immediate reaction to the report, sending the 10-yr yield back below its 200-day moving average (4.235%), but the rally was reversed later in the day alongside a bounce in equities. That bounce took place even though President Trump said that reciprocal tariffs, which were slated to go into effect on April 2, could be implemented today. Separately, Fed Chairman Powell said during a Q&A session that he was pleasantly surprised by improvements in productivity, which will result in higher potential output, and repeated that there is no rush to adjust policy at this time. The post-NFP reversal sent Treasuries back toward Thursday's lows. This week's underperformance in longer tenors expanded the 2s10s spread by nine basis points to 32 basis points. Crude oil finished the day above this year's low, but still lost $2.60, or 3.7%, for the week, while the U.S. Dollar Index slipped 0.2% to 103.85, extending this week's loss to 3.5%.
• Yield Check:
  • 2-yr: +3 bps to 4.00% (UNCH this week)
  • 3-yr: +3 bps to 4.01% (+3 bps this week)
  • 5-yr: +3 bps to 4.09% (+6 bps this week)
  • 10-yr: +3 bps to 4.32% (+9 bps this week)
  • 30-yr: +4 bps to 4.62% (+10 bps this week)

• News:
  • European Central Bank policymaker Villeroy de Galhau said that the battle with inflation is being won.
  • Japan's largest trade union is seeking a 6.09% general wage hike for the year, up from last year's 5.85% increase, which was the biggest in more than 20 years. On a related note, there was speculation that the Bank of Japan will announce another rate hike at the end of April after a pause in March.
  • Bank of England policymaker Mann argued against cutting rates in a gradual fashion.
  • China's February trade surplus reached $170.52 bln (expected $147.50 bln; last $104.84 bln) as imports fell 8.4% yr/yr (expected 1.0%; last 1.0%) and exports rose 2.3% yr/yr (expected 5.0%; last 10.7%). February FX Reserves reached $3.227 trln (expected $3.220 trln; last $3.209 trln).
  • South Korea's January Current Account surplus reached $2.94 bln (last surplus of $12.37 bln).
  • Eurozone's Q4 GDP expanded 0.2% qtr/qtr (expected 0.1%; last 0.4%), growing 1.2% yr/yr (expected 0.9%; last 0.9%). Q4 Employment increased by 0.7% yr/yr (expected 0.6%; last 1.0%).
  • Germany's January Factory Orders were down 7.0% m/m (expected -2.4%; last 5.9%).
  • U.K.'s February Halifax House Price Index was down 0.1% m/m (expected 0.5%; last 0.6%) but up 2.9% yr/yr (expected 3.1%; last 2.9%).
  • France's January trade deficit reached EUR6.5 bln (expected deficit of EUR4.1 bln; last deficit of EUR3.5 bln). January Current Account deficit reached EUR2.20 bln (last surplus of EUR2.60 bln).
  • Spain's January Industrial Production was down 1.0% yr/yr (last 2.0%).
  • Canada's employment increased by 1,100 in February (expected 19,700; last 76,000), but full employment fell 19,700 (last +35,200). February Unemployment Rate remained at 6.6% (expected 6.75) and Participation Rate fell to 65.3% from 65.5%.
• Today's Data:
  • February nonfarm payrolls increased by 151,000 (Briefing.com consensus 159,000). The 3-month average for total nonfarm payrolls decreased to 200,000 from 236,000. January nonfarm payrolls revised to 125,000 from 143,000. December nonfarm payrolls revised to 323,000 from 307,000.
    • February private sector payrolls increased by 140,000 (Briefing.com consensus 145,000). January private sector payrolls revised to 81,000 from 111,000. December private sector payrolls revised to 287,000 from 273,000.
    • February unemployment rate was 4.1% (Briefing.com consensus 4.0%), versus 4.0% in January. Persons unemployed for 27 weeks or more accounted for 20.9% of the unemployed versus 21.1% in January. The U6 unemployment rate, which accounts for unemployed and underemployed workers, increased to 8.0% from 7.5%.
    • February average hourly earnings were up 0.3% (Briefing.com consensus 0.3%) versus a downwardly revised 0.4% (from 0.5%) in January. Over the last 12 months, average hourly earnings have risen 4.0%, versus 3.9% for the 12 months ending in January.
    • The average workweek in February was 34.1 hours (Briefing.com consensus 34.2), versus 34.1 hours in January. Manufacturing workweek was unchanged at 40.1 hours. Factory overtime increased 0.1 hour to 2.9 hours.
    • The labor force participation rate decreased to 62.4% from 62.6% while the employment-population ratio decreased to 59.9% from 60.1%.
  • Consumer Credit increased by $18.1 bln in January.
    • Revolving credit increased by $9 bln while nonrevolving credit was up $9.1 bln.
• Commodities:
  • WTI crude: +1.0% to $67.11/bbl
  • Gold: -0.3% to $2916.00/ozt
  • Copper: -1.9% to $4.71/lb
• Currencies:
  • EUR/USD: +0.5% to 1.0842
  • GBP/USD: +0.3% to 1.2921
  • USD/CNH: +0.1% to 7.2442
  • USD/JPY: +0.1% to 148.02
• The Week Ahead:
  • Monday: Nothing of note
  • Tuesday: February NFIB Small Business Optimism Index (prior 102.8) at 6:00 ET; January job openings (prior 7.600 mln) at 10:00 ET; and $58 bln 3-yr Treasury note auction results at 13:00 ET
  • Wednesday: Weekly MBA Mortgage Index (prior 20.4%) at 7:00 ET; February CPI (prior 0.5%) and Core CPI (prior 0.4%) at 8:30 ET; weekly crude oil inventories (prior -2.33 mln) at 10:30 ET; $39 bln 10-yr Treasury note reopening results at 13:00 ET; and February Treasury Budget (prior -$129.0 bln) at 14:00 ET
  • Thursday: February PPI (prior 0.4%), Core PPI (prior 0.3%), weekly Initial Claims (prior 221,000), and Continuing Claims (prior 1.897 mln) at 8:30 ET; weekly natural gas inventories (prior -80 bcf) at 10:30 ET; and $22 bln 30-yr Treasury bond reopening results at 13:00 ET
  • Friday: Preliminary March University of Michigan Consumer Sentiment (prior 64.7) at 10:00 ET