Bond Market Update

Long End Leads Early Selling

• U.S. Treasuries are on track for a sharply lower start in longer tenors while the 2-yr note is expected to show some relative strength at the start. Treasury futures faced some light selling on Monday, but the pressure intensified leading into Tuesday. Treasury futures have spent early morning trade in a steady retreat, following an overnight slide in Japanese debt that drove yields on longer-dated JGBs to fresh record highs. The selling made for a continuation of an established trend, though the pace of the overnight move was startling. It followed a weak 20-yr JGB auction and the growing likelihood of increased fiscal spending after Prime Minister Takaichi confirmed that a snap election will be held on February 8. Other sovereign debt also retreated as higher JGB yields encourage Japanese investors to repatriate an increasing share of their foreign investments. Tariff concerns have contributed to the overall selling after President Trump said that a 10% tariff will be imposed on imports from major European nations until a Greenland deal is made. Precious metals have continued their rise to fresh records while crude oil is staying above its 50-day moving average (58.61). The U.S. Dollar Index is down 0.9% at 98.45, falling past its 50-day (98.97) and 200-day (98.72) moving averages to a two-week low.
• Yield Check:
  • 2-yr: -1 bp to 3.59%
  • 3-yr: -1 bp to 3.66%
  • 5-yr: +2 bps to 3.85%
  • 10-yr: +5 bps to 4.28%
  • 30-yr: +8 bps to 4.92%

• News:
  • President Trump will speak at the World Economic Forum in Davos on Wednesday morning.
  • Congress reached agreement on a bipartisan funding deal, according to Politico. House and Senate votes are being planned for this week and the next.
  • The People's Bank of China left its one-year and five-year prime rates at their respective 3.00% and 3.50%.
  • China's National Development and Reform Commission will take steps to boost demand for the next four years.
  • European Central Bank policymaker Vujcic was nominated to replace Luis de Guindos as ECB Vice President.
  • French Prime Minister Lecornu said that a surtax on profits of large companies will be maintained in the budget for 2026 to appease socialists.
  • South Korea's December PPI was up 0.4% m/m (last 0.3%), rising 1.9% yr/yr (last 1.9%).
  • Hong Kong's December Unemployment Rate remained at 3.8%.
  • India's December Infrastructure Output was up 3.7% yr/yr (last 1.8%).
  • New Zealand's December Performance of Services Index rose to 51.5 from 46.9.
  • Eurozone's November Current Account surplus reached EUR8.6 bln (expected surplus of EUR20.3 bln; last surplus of EUR26.7 bln) and November Construction Output was down 1.06% m/m (last 1.66%). January ZEW Economic Sentiment rose to 40.8 from 33.7 (expected 36.7).
  • Germany's December PPI was down 0.2% m/m, as expected (last 0.0%). January ZEW Economic Sentiment rose to 59.6 from 45.8 (expected 50.0) and ZEW Current Conditions rose to -72.7 from -81.0 (expected -75.5).
  • U.K.'s November three-month employment increased by 82,000 (expected 27,000; last -16,000). November Average Earnings Index + Bonus rose 4.7% yr/yr (expected 4.6%; last 4.8%), November Unemployment Rate remained at 5.1%, as expected, and December Claimant Count increased by 17,900 (expected 15,600; last -3,300).
  • Spain's November trade deficit reached EUR5.68 bln (last deficit of EUR4.69 bln).
  • Swiss December PPI was down 0.2% m/m, as expected (last -0.5%), falling 1.8% yr/yr (last -1.6%).
• Commodities:
  • WTI Crude: +0.9% to $59.95/bbl
  • Gold: +3.0% to $4733.00/ozt
  • Copper: +0.7% to $5.87/lb
• Currencies:
  • EUR/USD: +0.7% to 1.1728
  • GBP/USD: +0.2% to 1.3447
  • USD/CNH: -0.1% to 6.9527
  • USD/JPY: -0.1% to 157.87
• No Data on Today's Schedule