Bond Market Update

Long Bond Slides Despite Strong Auction

• U.S. Treasuries finished Thursday on a mixed note, as the 10-yr note and shorter tenors advanced while the long bond retreated despite a strong $22 bln 30-yr bond sale. The trading day started with gains that were paced by the belly after a night that featured gains in global equity markets. The short end took the lead after today's batch of economic data showed cooler-than-expected CPI for March (-0.1%; Briefing.com consensus 0.1%) that prompted a deceleration in the yr/yr CPI rate to 2.4% from 2.8% in February. Treasuries reached their best levels around the Wall Street open, followed by slow backtracking into the afternoon. The market bounced off lows in immediate reaction to today's 30-yr bond reopening, which made for a strong finish to this week's offering slate, allaying concerns about an ugly outcome like a failed auction. The post-auction bounce was short-lived, resulting in a slip to fresh lows in the 3-yr note and longer tenors. Tomorrow will bring the release of March PPI (Briefing.com consensus 0.1%; prior 0.0%) and quarterly reports from a handful of major banks, including JPMorgan Chase (JPM). Investors will likely pay increased attention to comments from JPM CEO Dimon, who often makes comments about the overall economy. Crude oil gave back roughly half of yesterday's gain, falling back to the $60/bbl area. This price will likely receive increased scrutiny in the coming sessions, since continued pressure on oil will invite concerns about the health of oil producers, especially those with higher-than-average extraction costs. The U.S. Dollar Index fell 2.0% to 100.87, diving toward its 2024 low (100.16).
• Yield Check:
  • 2-yr: -10 bps to 3.85%
  • 3-yr: -9 bps to 3.88%
  • 5-yr: -6 bps to 4.04%
  • 10-yr: -1 bp to 4.39%
  • 30-yr: +6 bps to 4.85%

• News:
  • The House of Representatives voted 216-214 to pass a reconciliation resolution that includes tax cuts, spending cuts, defense spending, a debt ceiling increase, and immigration/energy reform.
  • The White House confirmed that imports from China are now tariffed at 145%.
  • The U.S. Treasury announced an agreement to begin formal negotiations with Vietnam.
  • Kansas City Fed President (FOMC voter) Schmid said that the inflation outlook is his main focus at this time.
  • Japan dispatched an initial delegation to Washington that will set the ground for a visit from Economy Minister Akazawa in the coming weeks.
  • National Economic Council Director Hassett said that a 10% global tariff will be a baseline that could only be lowered by an "extraordinary deal."
  • House Republicans are aiming to vote on the reconciliation resolution at 10:20 ET, but it remains unclear if they have enough votes to pass the resolution, according to CNN.
  • China Securities Daily called on the People's Bank of China to lower interest rates and the reserve requirement ratio.
  • The World Trade Organization forecast that merchandise trade between China and the U.S. could decrease by up to 80%.
  • New Zealand's Finance Minister Willis said that the Reserve Bank of New Zealand has plenty of room to cut rates if necessary.
  • Volkswagen affirmed its guidance for the year.
  • China's March CPI was down 0.4% m/m (expected -0.2%; last -0.2%), falling 0.1% yr/yr (expected 0.0%; last -0.7%). March PPI was down 2.5% yr/yr (expected -2.3%; last -2.2%).
  • Japan's March Bank Lending was up 2.8% yr/yr (expected 3.1%; last 3.0%). March PPI was up 0.4% m/m (expected 0.2%: last 0.2%), rising 4.2% yr/yr (expected 3.9%; last 4.1%).
  • Italy's February Industrial Production was down 0.9% m/m, as expected (last 2.5%), falling 2.7% yr/yr (expected -1.9%; last -0.8%).
• Today's Data:
  • Total CPI decreased 0.1% month-over-month in March (Briefing.com consensus 0.1%) and was up 2.4% year-over-year versus 2.8% in February. Core CPI increased 0.1% month-over-month (Briefing.com consensus 0.3%) and was up 2.8% year-over-year versus 3.1% in February.
    • The key takeaway from the report is that, while better than expected, it will be discounted as a lasting improvement given the tariff actions that are now taking root across supply chains.
  • Initial jobless claims for the week ending April 5 increased by 4,000 to 223,000 (Briefing.com consensus 225,000). Continuing jobless claims for the week ending March 29 decreased by 43,000 to 1.850 million.
    • The key takeaway from the report is that the relatively low level of initial jobless claims remains consistent with an otherwise solid labor market and an economy still in expansion mode.
  • The Treasury Budget for March showed a deficit of $160.5 billion compared to a deficit of $236.6 billion in the same period a year ago. The March deficit resulted from outlays ($528.2 billion) exceeding receipts ($367.6 billion). The Treasury Budget data are not seasonally adjusted so the March deficit cannot be compared to the February deficit of $307.0 billion.
    • The key takeaway from the report is that the deficit so far in fiscal 2025 is 23% greater than the deficit seen at the same time in fiscal 2024.
  • Weekly natural gas inventories increased by 57 bcf after increasing by 29 bcf a week ago.
  • $22 bln 30-year Treasury bond reopening results (prior 12-auction average):
    • High yield: 4.813% (4.522%).
    • Bid-to-cover: 2.43 (2.42).
    • Indirect bid: 61.9% (66.2%).
    • Direct bid: 25.8% (18.8%).
• Commodities:
  • WTI crude: -3.6% to $60.12/bbl
  • Gold: +3.2% to $3175.60/ozt
  • Copper: UNCH at $4.35/lb
• Currencies:
  • EUR/USD: +2.4% to 1.1209
  • GBP/USD: +1.3% to 1.2979
  • USD/CNH: -0.5% to 7.3091
  • USD/JPY: -1.9% to 144.61
• The Day Ahead:
  • 8:30 ET: March PPI (Briefing.com consensus 0.1%; prior 0.0%) and Core PPI (Briefing.com consensus 0.3%; prior -0.1%)
  • 10:00 ET: Preliminary April University of Michigan Consumer Sentiment (Briefing.com consensus 54.8; prior 57.0)