Bond Market Update

December CPI Supports Higher Finish

• U.S. Treasuries finished Tuesday with gains across the curve, thanks in part to the December CPI report, which met headline expectations (0.3%) but also showed slightly cooler-than-expected core CPI (0.2%; Briefing.com consensus 0.3%). Treasuries started the day with slim losses in most tenors, but the entire complex benefited from some impulse buying in immediate reaction to the CPI report. The rest of the morning saw a quick pullback toward the day's starting levels, but the complex found support near yesterday's closing levels with shorter tenors pacing a return toward post-CPI highs. The move received some additional assistance from today's $22 bln 30-yr bond reopening, which made for a strong finish to this week's good note and bond auction slate. Crude oil reached its highest level since November while the U.S. Dollar Index rose 0.3% to 99.14.
• Yield Check:
  • 2-yr: -2 bps to 3.53%
  • 3-yr: -1 bp to 3.59%
  • 5-yr: -2 bps to 3.74%
  • 10-yr: -2 bps to 4.17%
  • 30-yr: -1 bp to 4.83%

• News:
  • President Trump said that he will formally announce his plan to ban institutional investors from buying single-family homes next week. He will also make an announcement related to health insurance next week.
  • Japan's Prime Minister Takaichi confirmed plans for a snap election in February aimed at boosting her party's standing in parliament.
  • There was growing speculation that continued yen weakness could prompt the Bank of Japan to announce its next rate hike sooner than previously planned.
  • French Prime Minister Lecornu is reportedly considering forcing through a 2026 budget without a vote.
  • Japan's November Current Account surplus reached JPY3.14 trln (expected surplus of JPY3.04 trln; last surplus of JPY2.48 trln). December Economy Watchers Current Index dipped to 48.6 from 48.7 (expected 48.7).
  • Australia's January Westpac Consumer Sentiment was down 1.7% (last -9.0%).
  • New Zealand's Q4 NZIER Business Confidence was up 48% (last 18%).
  • France's November government budget deficit reached EUR155.4 bln (last deficit of EUR136.2 bln).
  • French Prime Minister Lecornu is reportedly considering forcing through a 2026 budget without a vote.
• Today's Data:
  • Total CPI was up 0.3% month-over-month in December (Briefing.com consensus 0.3%) after increasing 0.2% in November. Core CPI, which excludes food and energy, was up 0.2% (Briefing.com consensus 0.3%) after increasing 0.2% in November. On a year-over-year basis, total CPI was up 2.7% versus 2.7% in November, while core CPI was up 2.6% versus 2.6% in November.
    • The key takeaway from the report is that core CPI was a touch cooler than expected, which prevented the year-over-year rate from rising. While this is a small victory, it is a welcome sight for a market that hopes to see some more future disinflation that would encourage the Fed to keep cutting rates.
  • The Department of Commerce released September and October new home sales data as it bids to catch up to release data following the government shutdown. September new home sales increased 3.8% month-over-month to a seasonally adjusted annual rate of 738,000 units versus a downwardly revised 711,000 units (from 800,000) in August. October new home sales dipped 0.1% month-over-month to a seasonally adjusted annual rate of 737,000 units.
    • The key takeaway from the report is that the South region—the nation's largest housing sector—was the sole source of strength in October. Home sales declined in all other regions, with higher home prices, on average, acting as a headwind.
  • The NFIB Small Business Optimism Index rose to 99.5 in December from 99.0 in November.
  • $22 bln 30-year Treasury bond reopening results (prior 12-auction average):
    • High yield: 4.825% (4.756%).
    • Bid-to-cover: 2.42 (2.37).
    • Indirect bid: 66.8% (63.5%).
    • Direct bid: 21.3% (23.1%).
• Commodities:
  • WTI crude: +2.7% to $61.17/bbl
  • Gold: -0.3% to $4600.30/ozt
  • Copper: UNCH at $6.02/lb
• Currencies:
  • EUR/USD: -0.1% to 1.1649
  • GBP/USD: -0.2% to 1.3434
  • USD/CNH: +0.1% to 6.9745
  • USD/JPY: +0.6% to 159.11
• The Day Ahead:
  • 7:00 ET: Weekly MBA Mortgage Index (prior -9.7%)
  • 8:30 ET: November PPI (Briefing.com consensus 0.2%; prior 0.3%), Core PPI (Briefing.com consensus 0.2%; prior 0.1%), November Retail Sales (Briefing.com consensus 0.4%; prior 0.0%), Retail Sales ex-auto (Briefing.com consensus 0.3%; prior 0.4%), and Q3 Current Account Balance (prior -$251.3 bln)
  • 10:00 ET: December Existing Home Sales (Briefing.com consensus 4.15 mln; prior 4.13 mln) 
  • 10:30 ET: Weekly crude oil inventories (prior -3.83 mln)