Bond Market Update

Treasuries Resist Early Pressure

• U.S. Treasuries began the week with losses across the curve, but an intraday resilient showing helped the complex finish above morning lows. The trading day started with relative weakness in the long bond after a night that was quiet on the global economic front, though news flow picked up the slack. Fed Chairman Powell acknowledged that he has been subpoenaed by the Department of Justice as part of a probe into renovation costs of the Fed's headquarters. Fed Chairman Powell said that the action is part of a broader effort to undermine the Fed's independence while Senator Tillis, who is a member of the Senate Banking Committee, said that he will block the confirmation process for the new Fed Chairman until the inquiry is resolved. Treasuries began rising from their starting levels shortly after the open with the long bond now leading to the upside after underperforming at the start. The bounce continued in steady fashion into the early afternoon, producing highs after the U.S. Treasury sold $39 bln in 10-yr notes to good demand. That was the second auction of the day while the 3-yr note offering that was held earlier also was met with healthy demand. Treasuries dipped from highs during the last 90 minutes of trade, returning the 2-yr note to its opening level while longer tenors finished above their starting marks. Crude oil climbed toward $60/bbl while the U.S. Dollar Index found resistance near its 50-day moving average (99.07), falling 0.3% to 98.88 with its 200-day moving average (98.81) just below.
• Yield Check:
  • 2-yr: +1 bp to 3.55%
  • 3-yr: UNCH at 3.60%
  • 5-yr: +1 bp to 3.77%
  • 10-yr: +2 bps to 4.19%
  • 30-yr: +2 bps to 4.84%

• News:
  • Japan's Prime Minister Takaichi is reportedly looking to call a snap election for February to boost her coalition's standing in parliament.
  • South Korea's exports through the first ten days of January were down 2.3% yr/yr but chip exports still jumped 45.6% yr/yr while auto and ship exports fell.
  • Australia is planning to establish a critical minerals strategic reserve by the end of the year.
  • There are some concerns that France will go into the spring without a full budget agreement for the year if the tentative coalition government collapses.
  • President Trump said that he wants to impose a 10% cap on credit card interest.
  • India's December CPI was up 1.33% yr/yr (expected 1.50%; last 0.71%).
  • Australia's December ANZ Job Advertisements decreased 0.5% m/m (last -1.5%).
  • Eurozone's January Sentix Investor Confidence rose to -1.8 from -6.2 (expected -5.1).
  • Swiss December SECO Consumer Climate rose to -31 from -34 (expected -33).
• Today's Data:
  • $58 bln 3-year Treasury note auction results (prior 12-auction average):
    • High yield: 3.609% (3.828%).
    • Bid-to-cover: 2.65 (2.63).
    • Indirect bid: 56.5% (65.0%).
    • Direct bid: 29.5% (21.4%).
  • $39 bln 10-year Treasury note auction results (prior 12-auction average):
    • High yield: 4.173% (4.320%).
    • Bid-to-cover: 2.55 (2.54).
    • Indirect bid: 69.6% (70.6%).
    • Direct bid: 24.5% (18.5%).
• Commodities:
  • WTI crude: +0.8% to $59.55/bbl
  • Gold: +2.5% to $4615.30/ozt
  • Copper: +2.0% to $6.02/lb
• Currencies:
  • EUR/USD: +0.3% to 1.1671
  • GBP/USD: +0.5% to 1.3465
  • USD/CNH: -0.1% to 6.9649
  • USD/JPY: +0.2% to 158.14
• The Day Ahead:
  • 6:00 ET: December NFIB Small Business Optimism Index (prior 99.0)
  • 8:30 ET: December CPI (Briefing.com consensus 0.3%; prior 0.2%) and Core CPI (Briefing.com consensus 0.3%; prior 0.2%)
  • 10:00 ET: September New Home Sales (Briefing.com consensus 710,000; prior 800,000)
  • 14:00 ET: December Treasury Budget (Briefing.com consensus -$223.0 bln; prior -$173.0 bln)
• Treasury Auctions:
  • 13:00 ET: $22 bln 30-yr Treasury bond reopening results