Bond Market Update

Belly Pressured by Good Data

• U.S. Treasuries finished the week on a lower note, sending yields on 5s and 10s to their highest levels since late August/early September. The Friday session made for a continuation of Thursday's reversal from this week's highs. Treasuries started the day with losses across the curve after a night of mild pressure on other sovereign debt. Longer tenors paced the early selling, but there was an intraday shift in the dynamic that saw relative weakness in the belly while the long bond continued its recent show of intraday outperformance. Still, the selling lifted the 30-yr yield back above its 200-day moving average (4.803%) into the top half of this month's range while the 10-yr yield settled right on the 200-day moving average (4.232%) of its own, which marks the benchmark yield's highest level since early September. The 5-yr yield also reached a multi-month high, rising past its 200-day moving average (3.809%) to a level not seen since late August. The underperformance in the belly follows a string of upside surprises in economic data, including the Industrial Production report for December (0.4%; Briefing.com consensus 0.2%), which was released today. Recent upbeat economic reports have also exerted some pressure on the front end, though the 2-yr yield remains below its highs from December and November with the market remaining confident that the next rate cut will be announced in June. Crude oil stayed above its 50-day moving average (58.61) while the U.S. Dollar Index rose 0.1% to 99.38, adding 0.2% for the week. Bond and equity markets will be closed on Monday for Martin Luther King Jr day.
• Yield Check:
  • 2-yr: +4 bps to 3.60% (+6 bps this week)
  • 3-yr: +5 bps to 3.67% (+7 bps this week)
  • 5-yr: +7 bps to 3.83% (+7 bps this week)
  • 10-yr: +7 bps to 4.23% (+6 bps this week)
  • 30-yr: +5 bps to 4.84% (+2 bps this week)

• News:
  • The Bank of Japan is not expected to announce a rate hike next week, but expectations for a rate increase in April are on the rise.
  • NTT and Honda priced upcoming bonds while Credit Agricole priced its Samurai bonds.
  • Japan's CDP and Komeito parties have established an alliance aimed at blocking Prime Minister Takaichi's LDP from gaining outright majority in the Lower House.
  • The U.S. reached an agreement with Taiwan on a quota system for chip tariffs.
  • South Korea's Finance Minister Koo said that planned investment in the U.S. will have to be delayed past the first half of this year due to unfavorable exchange rates.
  • Singapore's December trade surplus reached SGD2.205 bln (last surplus of SGD6.777 bln) as non-oil exports fell 9.4% m/m (expected -4.5%; last 7.1%), rising 6.1% yr/yr (expected 10.0%; last 11.5%).
  • New Zealand's December Business PMI hit 56.1 (last 51.4). December FPI was down 0.3% m/m (last -0.4%).
  • Germany's final December CPI was unchanged m/m, as expected (last -0.2%), rising 1.8% yr/yr, as expected (last 2.3%).
  • Italy's December CPI was up 0.2% m/m, as expected (last -0.2%), rising 1.2% yr/yr, as expected (last 1.1%).
• Today's Data:
  • Industrial production increased 0.4% month-over-month in December (Briefing.com consensus 0.2%) following an upwardly revised 0.4% increase (from 0.2%) in November. The capacity utilization rate was 76.3% (Briefing.com consensus 76.0%) versus an upwardly revised 76.1% (from 76.0%) in November. Total industrial production increased 2.0% yr/yr, while the capacity utilization rate was 3.2 percentage points below its long-run average.
    • The key takeaway from the report is that manufacturing output was even better than the headline suggests given the nice upward revision for November. This is consistent with an economy that closed 2025 on a good note, notwithstanding the government shutdown in October.
  • The NAHB Housing Market Index fell to 37 in January (Briefing.com consensus 40) from 39 in December.
  • The U.S. Treasury reported last evening that Net Long-Term TIC transactions totaled $220.2 bln in November, up from $30.9 bln in October.
• Commodities:
  • WTI crude: +0.4% to $59.34/bbl
  • Gold: -0.6% to $4595.30/ozt
  • Copper: -2.7% to $5.83/lb
• Currencies:
  • EUR/USD: -0.1% to 1.1599
  • GBP/USD: +0.1% to 1.3386
  • USD/CNH: +0.1% to 6.9671 
  • USD/JPY: -0.3% to 158.07
• The Week Ahead:
  • Monday: Bond and equity markets closed for Martin Luther King Jr Day
  • Tuesday: Nothing of note
  • Wednesday: Weekly MBA Mortgage Index (prior 28.5%) at 7:00 ET; December Housing Starts (prior NA) and Building Permits (prior NA) at 8:30 ET; September Construction Spending (Briefing.com consensus 0.0%; prior 0.2%), October Construction Spending (Briefing.com consensus 0.2%; prior NA), and December Pending Home Sales (Briefing.com consensus 0.7%; prior 3.3%) at 10:00 ET; and $13 bln 20-yr Treasury bond reopening results at 13:00 ET
  • Thursday: October Personal Income (Briefing.com consensus 0.3%; prior 0.4%), Personal Spending (Briefing.com consensus 0.1%; prior 0.4%), PCE Price Index (Briefing.com consensus 0.2%; prior 0.3%), an Core PCE Price Index (Briefing.com consensus 0.2%; prior 0.2%), November Personal Income (Briefing.com consensus 0.4%; prior NA), Personal Spending (Briefing.com consensus 0.4%; prior NA), PCE Prices (Briefing.com consensus 0.2%; prior NA), and Core PCE Prices (Briefing.com consensus 0.2%; prior NA), Q3 GDP -- revised (Briefing.com consensus 4.3%; prior 4.3%), Q3 GDP Deflator -- revised (Briefing.com consensus 3.7%; prior 3.8%), and weekly Initial Claims (Briefing.com consensus 200,000; prior 198,000), and Continuing Claims (prior 1.884 mln) at 8:30 ET; weekly natural gas inventories (prior -71 bcf) at 10:30 ET; and weekly natural gas inventories (prior +3.39 mln) at 12:00 ET
  • Friday: Flash January S&P Global U.S. Manufacturing PMI (prior 51.8) and flash January S&P Global U.S. Services PMI (prior 52.5) at 9:45 ET; and final January University of Michigan Consumer Sentiment (Briefing.com consensus 54.0; prior 54.0) at 10:00 ET