Bond Market Update

Looming Tariffs and Weak Manufacturing Boost Treasuries

• U.S. Treasuries began April with solid gains in longer tenors while the short end underperformed slightly. Global risk tolerance remained pressured to begin Q2, given tomorrow's implementation of U.S. tariffs. It is still unclear if President Trump will announce universal tariffs on all imports or more targeted duties when he delivers a speech tomorrow at 16:00 ET. Investors received final March Manufacturing PMI readings from major economies with eurozone's reading (48.6; expected 48.7; prior 47.6) pointing to an ongoing contraction, which was also the case in Japan (49.1; prior 49.9). Treasuries built on their starting gains after the ISM Manufacturing Index for March (49.0%; Briefing.com consensus 49.8%; prior 50.3%) showed that the U.S. manufacturing sector is also now in contraction while price hikes continued for the second consecutive month. Accordingly, the Atlanta Fed's GDPNow forecast for Q1 GDP was revised down to -3.7% from -2.8% in the previous estimate. Treasuries inched down from their session highs as the day went on, finding support near the day's starting levels. Still, this marked the lowest settlement for the 10-yr yield since early December while the 2-yr yield finished at a level last seen in early October. Crude oil recorded a slight loss while the U.S. Dollar Index spent the day near its unchanged level at 104.21.
• Yield Check:
  • 2-yr: -5 bps to 3.86%
  • 3-yr: -6 bps to 3.85%
  • 5-yr: -7 bps to 3.91%
  • 10-yr: -9 bps to 4.16%
  • 30-yr: -10 bps to 4.52%

• News:
  • European Central Bank supervisory chief Buch warned eurozone banks to prepare for potential geopolitical shocks and liquidity risks, emphasizing the importance of robust risk management systems in the current uncertain environment while ECB President Lagarde repeated that tariffs could boost inflation and reduce growth.
  • Volkswagen CEO Blume said that the auto sector is preparing for a challenging quarter.
  • The Reserve Bank of Australia left its cash rate at 4.10%, as expected, but also acknowledged tariff-related uncertainty.
  • China's March Caixin Manufacturing PMI hit 51.2 (expected 50.6; last 50.8).
  • Japan's February Jobs/applications ratio fell to 1.24 from 1.26 (expected 1.26) and February Unemployment Rate fell to 2.4% from 2.5% (expected 2.5%). Q1 Tankan All Big Industry Capex was up 3.1% (last 11.3%). Q1 Tankan Large Manufacturers Outlook Index fell to 12 from 14, as expected, and Q1 Tankan Large Non-Manufacturers Index rose to 35 from 33 (expected 33). March Manufacturing PMI hit 48.4 (expected 48.3; last 49.0).
  • South Korea's March trade surplus reached $4.99 bln (expected surplus of $6.10 bln; last surplus of $4.15 bln) as imports grew 2.3% yr/yr, as expected (last 0.2%) and exports rose 3.1% yr/yr (expected 3.5%; last 0.7%). March Manufacturing PMI hit 49.1 (last 49.9).
  • Singapore's Q1 URA Property Index was up 0.6% qtr/qtr (last 2.3%).
  • Australia's March Manufacturing PMI hit 52.1 (expected 52.6; last 50.4) and February Retail Sales rose 0.2% m/m (expected 0.3%; last 0.3%).
  • Eurozone's March Manufacturing PMI hit 48.6 (expected 48.7; last 47.6). Flash March CPI was up 0.6% m/m (last 0.4%), rising 2.2% yr/yr, as expected (last 2.3%). Flash March Core CPI was up 1.0% m/m (last 0.5%), rising 2.4% yr/yr (expected 2.5%; last 2.6%). February Unemployment Rate fell to 6.1% from 6.2% (expected 6.2%).
  • Germany's March Manufacturing PMI hit 48.3 (expected 48.4; last 46.5).
  • U.K.'s March Nationwide HPI was unchanged m/m (expected 0.2%; last 0.4%), rising 3.9% yr/yr (last 3.9%). March Manufacturing PMI hit 44.9 (expected 44.6; last 46.9).
  • France's March Manufacturing PMI hit 48.5 (expected 48.9; last 45.8).
  • Italy's March Manufacturing PMI hit 46.6 (expected 47.9; last 47.4) and February Unemployment Rate fell to 5.9% from 6.2% (expected 6.3%).
  • Spain's March Manufacturing PMI hit 49.5 (expected 49.8; last 49.7).
  • Swiss February Retail Sales rose 1.6% yr/yr (expected 1.5%; last 2.9%). March Manufacturing PMI hit 48.9 (expected 50.4; last 49.6).
• Today's Data:
  • The March ISM Manufacturing Index hit 49.0% (Briefing.com consensus 49.8%) versus 50.3% in February. The dividing line between expansion and contraction is 50.0%, so the March reading suggests that activity in the manufacturing sector decreased compared to the prior month.
    • The key takeaway from the report is that it paints a poor picture for the second month in a row, as the headline index slipped into contraction while prices rose sharply for the second consecutive month.
  • Total construction spending increased 0.7% month-over-month in February (Briefing.com consensus 0.4%) after decreasing a revised 0.5% (from -0.2%) in January. Total private construction was up 0.9% month-over-month while total public construction was up 0.2% month-over-month. On a year-over-year basis, total construction spending was up 2.9%.
    • The key takeaway from the report is that residential spending rebounded after a poor January, which is encouraging for longer term health of the housing market.
  • The S&P Global U.S. Manufacturing PMI hit 50.2 in the final reading for March, up from 49.8 in the preliminary reading, but down from the final February reading of 52.7.
  • Job openings decreased to 7.568 million in February from a revised 7.762 million (from 7.740 million) in January.
• Commodities:
  • WTI crude: -0.4% to $71.22/bbl
  • Gold: -0.1% to $3146.60/ozt
  • Copper: -0.2% to $5.03/lb
• Currencies:
  • EUR/USD: -0.3% to 1.0788
  • GBP/USD: UNCH at 1.2912
  • USD/CNH: +0.3% to 7.2813
  • USD/JPY: -0.3% to 149.44
• The Day Ahead:
  • 7:00 ET: Weekly MBA Mortgage Index (prior -2.0%)
  • 8:15 ET: March ADP Employment Change (Briefing.com consensus 120,000; prior 77,000)
  • 10:00 ET: February Factory Orders (Briefing.com consensus 0.4%; prior 1.7%)
  • 10:30 ET: Weekly crude oil inventories (prior -3.34 mln)