Bond Market Update

Three-Day Streak Ends Ahead of Easter Weekend

• U.S. Treasuries retreated to end the holiday-abbreviated week, snapping their three-day streak. The trading day started with modest losses across the curve after overnight action saw a positive showing from Asian equities and some pressure on European stocks. There were no tariff-related surprises during overnight action, but the market remained on high alert for any potential developments, especially since Italy's Prime Minister Meloni visited the White House today to talk about trade. Ms. Meloni said that Italy aims to increase its imports of liquified natural gas from the U.S. while President Trump expressed confidence in reaching a trade deal with the EU. President Trump also took some time to criticize Fed Chairman Powell, saying that he believes the Fed Chairman would resign if asked, but Mr. Powell has previously made it clear that he intends to finish his term. The 5-yr note and shorter tenors displayed some early strength while longer tenors lagged from the start, remaining behind until the close. Today's retreat lifted the 10-yr yield back above its 50-day moving average (4.325%), though the benchmark yield still lost 16 basis points this week. Crude oil rallied to its best level in two weeks while the U.S. Dollar Index rose 0.1% to 99.52, trimming this week's loss to 0.3%.
• Yield Check:
  • 2-yr: +1 bp to 3.80% (-15 bps this week)
  • 3-yr: +1 bp to 3.80% (-20 bps this week)
  • 5-yr: +3 bps to 3.94% (-22 bps this week)
  • 10-yr: +5 bps to 4.33% (-16 bps this week)
  • 30-yr: +5 bps to 4.80% (-8 bps this week)

• News:
  • The Atlanta Fed's GDPNow forecast for Q1 GDP was left unrevised at -2.2%.
  • The Bank of Korea left its policy rate at 2.75%, as expected.
  • The European Central Bank lowered its interest rate corridor by 25-basis points, as expected.
  • Bank of Japan Governor Ueda cautioned that keeping rates at a low level while inflation accelerates could force the Bank of Japan to hike rates rapidly.
  • The Bank of England's latest Credit Conditions survey showed that credit availability to households increased in Q1 and is expected to increase again in Q2. Italy's Prime Minister Meloni will meet with President Trump today to discuss trade.
  • Japan's March trade deficit reached JPY0.23 trln (expected deficit JPY0.25 trln; last surplus JPY0.19 trln) as exports rose 3.9% yr/yr (expected 4.5%; last 11.4%) and imports grew 2.0% yr/yr (expected 3.1%; last -0.7%).
  • Singapore's March trade surplus SGD5.242 bln (last surplus SGD6.182 bln) as non-oil exports fell 7.6% m/m (last 2.6%), increasing 5.4% yr/yr (expected 13.6%; last 7.6%).
  • Australia's March Employment increased by 32.2K (expected +39.8K; last -57.5K) and full employment increased by 15.0K (last -43.9K). March Unemployment Rate rose to 4.1% from 4.0% (expected 4.2%) and March Participation Rate rose to 66.8% from 66.7% (expected 67.0%). NAB Quarterly Business Confidence ticked up to -4 from -5.
  • New Zealand's Q1 CPI was up 0.9% qtr/qtr (expected 0.8%; last 0.5%), rising 2.5% yr/yr (expected 2.3%; last 2.2%).
  • Germany's March PPI was down 0.7% m/m (expected -0.1%; last -0.1%), falling 0.2% yr/yr (expected 0.4%; last 0.5%).
  • Swiss March trade surplus reached CHF6.350 bln (expected surplus CHF5.220 bln; last surplus CHF4.741 bln).
• Today's Data:
  • Total housing starts declined 11.4% month-over-month in March to a seasonally adjusted annual rate of 1.324 million (Briefing.com consensus 1.418 million) from a downwardly revised 1.494 million (from 1.501 million) in February. Building permits increased 1.6% month-over-month to a seasonally adjusted annual rate of 1.481 million (Briefing.com consensus 1.455 million) from an upwardly revised 1.459 million (from 1.456 million) in February.
    • The key takeaway from the report is that single-unit starts (-14.2%) and permits (-2.0%) were both down during the month, as affordability constraints driven by higher mortgage rates and building costs presumably curtailed homebuilder activity.
  • Initial jobless claims for the week ending April 12 decreased by 9,000 to 215,000 (Briefing.com consensus 225,000). Continuing jobless claims for the week ending April 5 increased by 41,000 to 1.885 million.
    • The key takeaway from the report is that the low level of initial jobless claims will support the idea that the labor market is still in a solid position overall. Additionally, this should factor well in forecasts for April nonfarm payrolls since it covers the period in which the employment survey is conducted.
  • The April Philadelphia Fed Index plunged to -26.5 (Briefing.com consensus 10.0) from 12.5 in March. The dividing line between expansion and contraction is 0.0.
    • The key takeaway from the report is that the index for new orders dropped sharply to -34.2 from 8.7, signaling a notable dropoff in demand; meanwhile, the prices paid index rose to 51.0 from 48.3.
  • Weekly natural gas inventories increased by 16 bcf after increasing by 57 bcf a week ago.
• Commodities:
  • WTI crude: +3.4% to $63.92/bbl
  • Gold: -0.4% to $3327.80/ozt
  • Copper: +0.4% to $4.70/lb
• Currencies:
  • EUR/USD: -0.4% to 1.1351
  • GBP/USD: +0.1% to 1.3257
  • USD/CNH: +0.1% to 7.3031
  • USD/JPY: +0.6% to 142.58
• The Week Ahead:
  • Monday: March Leading Indicators (prior -0.3%) at 10:00 ET
  • Tuesday: $69 bln 2-yr Treasury note auction results at 13:00 ET
  • Wednesday: Weekly MBA Mortgage Index (prior -8.5%) at 7:00 ET; March New Home Sales (prior 676,000) at 10:00 ET; weekly crude oil inventories (prior +515,000) at 10:30 ET; and $70 bln 5-yr Treasury note auction results at 13:00 ET
  • Thursday: March Durable Orders (prior 0.9%), Durable Orders ex-transport (prior 0.7%), weekly Initial Claims (prior 215,000), and Continuing Claims (prior 1.885 mln) at 8:30 ET; March Existing Home Sales (prior 4.26 mln) at 10:00 ET; weekly natural gas inventories (prior +16 bcf) at 10:30 ET; and $44 bln 7-yr Treasury note auction results at 13:00 ET
  • Friday: Final April University of Michigan Consumer Sentiment (prior 50.8) at 10:00 ET