Bond Market Update

Tuesday Gains Extended

• U.S. Treasuries enjoyed a midweek extension of their gains from Tuesday, sending yields on most tenors to one-week lows while the 30-yr yield settled at its lowest level since early December. The trading day started with slim gains that the market defended through the release of this morning's batch of data, which included the delayed November PPI report (0.2%; Briefing.com consensus 0.2%). That report matched headline expectations while core PPI was unchanged (Briefing.com consensus 0.2%), coming in below expectations. That report was released alongside November Retail Sales (0.6%; Briefing.com consensus 0.4%), which beat estimates. Treasuries climbed above their starting highs about 90 minutes into the session, adding to their gains through the rest of the morning as equities faced some profit taking after a push to fresh records in the Dow and S&P 500. Today's buying sent the 30-yr yield back below its 200-day moving average (4.800%) to its lowest settlement since early December while the 10-yr yield finished at a one-week low with its 50-day moving average (4.127%) right below. Crude oil climbed for the fifth consecutive day to its highest level since late October while the U.S. Dollar Index slipped below its 50-day moving average (99.04) in morning trade, but reclaimed that level as the day went on, ending little changed.
• Yield Check:
  • 2-yr: -2 bps to 3.51%
  • 3-yr: -3 bps to 3.56%
  • 5-yr: -3 bps to 3.72%
  • 10-yr: -3 bps to 4.14%
  • 30-yr: -3 bps to 4.80%

• News:
  • The Atlanta Fed's GDPNow forecast for Q4 GDP was revised up to 5.3% from 5.1% in the previous estimate.
  • Atlanta Fed President (non-voter) Bostic believes that restrictive policy is still needed, according to Bloomberg.
  • Minneapolis Fed President (non-voter) Kashkari said that he doesn't see a need for a rate cut this month, according to Reuters.
  • Stock exchanges in Beijing and Shenzhen announced that margin ratios will be increased to 100% from 80%.
  • European Central Bank policymakers De Guindos and Kazaks said that policy is in a good place with respect to inflation.
  • The Bank of France expects domestic Q4 growth of just 0.2%. Bank of France Governor Villeroy de Galhau warned that France should not exceed a 5% deficit to GDP ratio in 2026.
  • China's December trade surplus reached $114.10 bln (expected surplus of $114.30 bln; last surplus of $111.68 bln). December imports were up 5.7% yr/yr (expected 0.9%; last 1.9%) and exports rose 6.6% yr/yr (expected 3.0%; last 5.9%).
  • Japan's January Reuters Tankan Index fell to 7 from 10 and December Machine Tool Orders rose 10.6% yr/yr (expected 14.2%; last 16.8%).
  • South Korea's December Import Price Index was up 0.3% yr/yr (last 1.9%) and Export Price Index was up 5.5% yr/yr (last 6.8%). December Unemployment Rate jumped to 4.0% from 2.7%.
  • India's December WPI Inflation was up 0.83% yr/yr (expected 0.30%; last -0.32%).
  • Australia's November Building Approvals increased 15.2% m/m, as expected (last -6.1%), rising 20.2% yr/yr, as expected (last -1.8%). November Private House Approvals were up 1.3% m/m, as expected (last -1.3%).
  • New Zealand's November Building Consents rose 2.8% m/m (last -0.7%).
• Today's Data:
  • Total retail sales increased 0.6% month-over-month in November (Briefing.com consensus: 0.4%) following a downwardly revised 0.1% decline (from 0.0%) in October. Excluding autos, retail sales increased 0.5% (Briefing.com consensus: 0.3%) following a downwardly revised 0.2% increase (from 0.4%) in October.
    • The key takeaway from the report is that retail sales rebounded smartly in November after the end of the government shutdown, driven by increases across most discretionary spending categories.
  • The Producer Price Index for final demand increased 0.2% month-over-month in November (Briefing.com consensus: 0.2%) following a downwardly revised 0.1% increase (from 0.3%) in October. The Index for final demand, excluding food and energy, was unchanged (Briefing.com consensus: 0.2%) following an upwardly revised 0.3% increase (from 0.1%) in October.
    • The key takeaway from the report is that PPI and core-PPI both increased on a year-over-year basis to 3.0% from 2.8% and 2.9%, respectively, which is to say they moved in the wrong direction to create a true sense of inflation calm and a seeming rate-cut guarantee.
  • Existing home sales increased 5.1% month-over-month in December to a seasonally adjusted annual rate of 4.35 million (Briefing.com consensus 4.15 million) versus an upwardly revised 4.14 million (from 4.13 million) in November. Sales were up 1.4% on a year-over-year basis.
    • The key takeaway from the report is that home sales in December increased across all regions, leading to the strongest increase in seasonally adjusted sales in nearly three years despite tight inventory levels.
  • The Current Account deficit hit $226.4 bln in Q3, down from a revised deficit of $249.2 bln (from $251.3 bln) in Q2.
  • Business Inventories increased by 0.3% in October after a revised 0.3% increase (from 0.2%) in September.
  • The weekly MBA Mortgage Index jumped 28.5% to follow a 9.7% decrease for the preceding two-week period. The Purchase Index rose 15.9% while the Refinance Index spiked 40.1%.
  • Weekly crude oil inventories increased by 3.39 mln barrels after decreasing by 3.83 mln barrels a week ago.
  • The Fed's January Beige Book described overall economic activity as having increased at a slight to modest pace in eight Districts while three Districts saw no change and one reported a modest decline. Consumer spending increased during the holiday shopping season with higher-income consumers fueling the growth while remaining groups became more price sensitive. Auto sales were little changed while manufacturing was mixed. Residential real estate activity softened while employment was little changed.
• Commodities:
  • WTI crude: +1.2% to $61.88/bbl
  • Gold: +0.8% to $4635.40/ozt
  • Copper: +0.5% to $6.05/lb
• Currencies:
  • EUR/USD: UNCH at 1.1637
  • GBP/USD: +0.1% to 1.3430
  • USD/CNH: UNCH at 6.9715
  • USD/JPY: -0.4% to 158.50
• The Day Ahead:
  • 8:30 ET: Weekly Initial Claims (Briefing.com consensus 210,000; prior 208,000), Continuing Claims (prior 1.914 mln), January Philadelphia Fed survey (Briefing.com consensus -5.0; prior -10.2), January Empire State Manufacturing survey (Briefing.com consensus 1.0; prior -3.9), and November Import/Export prices
  • 10:30 ET: Weekly natural gas inventories (prior -119 bcf)
  • 16:00 ET: November Net Long-Term TIC Flows (prior $17.5 bln)