Bond Market Update

Role Reversal

• U.S. Treasuries were mixed for the second day in a row, but today, the long end bounced from yesterday's underperformance while shorter tenors lagged throughout the day after leading on Monday. Once again, the night saw a sparse economic calendar and there were no significant headline surprises. The International Monetary Fund released its updated global economic outlook, and unsurprisingly, it lowered its 2025 global growth forecast to 2.8% from 3.3% while the forecast for the U.S. was also reduced by 50 basis points to 1.8% due to the expected impact of tariffs. The global outlook for 2026 was reduced to 3.0% from 3.3%. Treasuries climbed off their opening levels in morning trade, but the shallow bounce gave way to selling, which coincided with a strong rebound in equities and midday comments from Treasury Secretary Bessent, who said that the situation with China is unsustainable and needs to deescalate. The 2-yr note touched a fresh low for the day after the U.S. Treasury sold $69 bln in 2-yr notes to weak demand, headlined by the weakest show of foreign demand for this tenor in two years. The 2-yr note was able to stay above its afternoon low into the close while longer tenors finished essentially where they started, hanging onto modest gains. Crude oil recovered yesterday's loss while the U.S. Dollar Index climbed 0.6% to 98.86, rising off its lowest level since March 2022.
• Yield Check:
  • 2-yr: +6 bps to 3.81%
  • 3-yr: +4 bps to 3.81%
  • 5-yr: +2 bps to 3.98%
  • 10-yr: -2 bps to 4.39%
  • 30-yr: -3 bps to 4.88%

• News:
  • European Commission President von der Leyen stated that amid growing unpredictability, countries are "lining up" to work with the EU as a "strong, reliable partner."
  • Large e-commerce companies in China are trying to redirect some of their sales to the domestic market due to weakening international demand, according to FT.
  • Japanese bank regulators are encouraging banks to support small companies whose financing has been impacted by tariffs.
  • Japan's February BoJ Core CPI was up 2.2% yr/yr (expected 2.4%; last 2.2%).
  • South Korea's March PPI was unchanged m/m (last 0.0%), rising 1.3% yr/yr (last 1.5%).
  • Hong Kong's March Unemployment Rate held at 3.2%.
  • New Zealand's March trade surplus reached NZD970 mln (expected surplus of NZD80 mln; last surplus of NZD392 mln).
  • Spain's February trade deficit reached EUR3.42 bln (last deficit of EUR6.19 bln).
  • Today's Data:
    • $69 bln 2-year Treasury note auction results (prior 12-auction average):
      • High yield: 3.795% (4.288%).
      • Bid-to-cover: 2.52 (2.66).
      • Indirect bid: 56.2% (70.1%).
      • Direct bid: 30.1% (17.5%).
• Commodities:
  • WTI crude: +2.0% to $63.68/bbl
  • Gold: -0.2% to $3419.60/ozt
  • Copper: +3.3% to $4.877/lb
• Currencies:
  • EUR/USD: -0.7% to 1.1429
  • GBP/USD: -0.3% to 1.3339
  • USD/CNH: +0.3% to 7.3095
  • USD/JPY: +0.5% to 141.51
• The Day Ahead:
  • 7:00 ET: Weekly MBA Mortgage Index (prior -8.5%)
  • 9:45 ET: Flash April S&P Global US Manufacturing PMI (prior 50.2) and flash S&P Global US Services PMI (prior 54.4)
  • 10:00 ET: March New Home Sales (Briefing.com consensus 684,000; prior 676,000) 
  • 10:30 ET: Weekly crude oil inventories (prior +515,000)
• Treasury Auctions:
  • 13:00 ET: $70 bln 5-yr Treasury note auction results