Bond Market Update

Tariff Uncertainty Invites Volatile Action

• U.S. Treasuries started the week with sharp losses in longer tenors after giving back their opening gains. The trading day started on a firmly higher note in longer tenors and some relative weakness in the long end after a night that saw continued pressure on global equities amid concerns about the impact of new U.S. tariffs. The picture remains fluid, but Vietnam, Taiwan, and India already expressed interest in negotiating with Taiwan and Vietnam looking to reduce tariffs on both sides to zero. The long bond faced pressure from the start while the entire complex dove lower after a morning report that President Trump may offer a 90-day pause on implementing tariffs on imports from all countries except for China. The report sent Treasuries to lows, followed by a short-lived bounce. A follow-up report from CNBC noted that the earlier report caught administration officials by surprise and an official White House statement noted that the president is not backing off tariffs at this time. Not only that, but the president also said that China will be hit with an additional 50% tariff, starting Wednesday, if it does not withdraw the 34% reciprocal tariff it has announced for U.S. imports. Later in the day, it was reported that the EU plans to implement a 25% counter tariff on select U.S. goods starting May 16 and December 1, according to Reuters. However, European Commission President von der Leyen expressed interest in removing tariffs on industrial shipments to the U.S. if the U.S. reciprocates. Treasuries finished the day not far above their lows with the 10-yr yield returning to levels seen in the middle of last week with its 200-day moving average (4.219%) looming above. Crude oil settled at a fresh low for the year while the U.S. Dollar Index rose 0.3% to 103.31.
• Yield Check:
  • 2-yr: +6 bps to 3.73%
  • 3-yr: +9 bps to 3.74%
  • 5-yr: +13 bps to 3.84%
  • 10-yr: +17 bps to 4.16%
  • 30-yr: +21 bps to 4.59%

• News:
  • The Reserve Bank of New Zealand's shadow board recommends a 25-bps rate cut on Wednesday while Kiwibank has made the case for a 50-bps reduction.
  • EU trade commissioner Sefcovic said that free trade cooperation with other countries will be accelerated.
  • Germany's incoming Chancellor Merz called for tax cuts, deregulation, and measures to protect German competitiveness.
  • China's March FX Reserves reached $3.241 trln (last $3.227 trln).
  • Japan's February Average Cash Earnings were up 3.1% yr/yr (expected 3.1%; last 1.8%) and February Overtime Pay rose 2.2% yr/yr (last 1.5%). February Leading Index fell to 107.9 from 108.2 (expected 107.8) and Coincident Indicator rose 0.8% m/m (last 0.1%).
  • Hong Kong's February Foreign Reserves reached $413.10 bln (last $416.40 bln).
  • Singapore's February Foreign Reserves reached $381.1 bln (last $379.3 bln).
  • Australia's March ANZ Job Advertisements were up 0.4% m/m (last -1.3%). 
  • Eurozone's April Sentix Investor Confidence fell to -19.5 from -2.9 (expected -8.9). February Retail Sales were up 0.3% m/m (expected 0.5%; last 0.0%), rising 2.3% yr/yr (expected 1.8%; last 1.8%).
  • Germany's February trade surplus reached EUR17.7 bln (expected surplus of EUR18.4 bln; last surplus of EUR16.2 bln) as imports rose 0.7% m/m (last 5.0%) and exports grew 1.8% m/m (last 0.0%). February Industrial Production was down 1.3% m/m (expected -0.9%; last 2.0%), falling 4.0% yr/yr (last -1.5%).
  • U.K.'s March Halifax House Price Index was down 0.5% m/m (expected 0.2%; last -0.2%) but up 2.8% yr/yr (last 2.8%).
  • Swiss March Foreign Reserves reached $725.6 bln (last $735.4 bln).
• Today's Data:
  • Consumer credit decreased by $0.8 billion in February (Briefing.com consensus $15.1 billion) after increasing by a downwardly revised $8.9 billion (from $18.1 billion) in January.
    • The key takeaway from the report is that February marked the third contraction in consumer credit in the last four months.
• Commodities:
  • WTI crude: -2.1% to $60.68/bbl
  • Gold: -2.0% to $2973.40/ozt
  • Copper: -3.2% to $4.25/lb
• Currencies:
  • EUR/USD: -0.2% to 1.0932
  • GBP/USD: -1.1% to 1.2747
  • USD/CNH: +0.8% to 7.3479
  • USD/JPY: +0.5% to 147.70
• No Data on Tomorrow's Schedule
• Treasury Auctions:
  • 13:00 ET: $58 bln 3-yr Treasury note auction results