Bond Market Update

Continued JGB Weakness Pressures Treasuries

• U.S. Treasuries had a mostly lower showing to begin the week, as longer tenors retreated notably with the 30-yr bond leading the way while the 2-yr note resisted, ending flat. However, intraday action was mostly uneventful as Treasuries spent the day in a sideways range near their starting levels. The early weakness in longer tenors, which drove yields on 10s and 30s to levels not seen since September, developed as considerable pressure on JGBs drove yields on longer tenors to fresh records with Japan's 20-yr yield (3.307%) jumping 15 basis points amid pressure from a weak auction and solidifying expectations for more fiscal spending after a snap election in early February. Altogether, the rapid rise in JGB yields is encouraging Japanese investors to repatriate a growing share of their foreign investments. Treasury Secretary Bessent chimed in, saying that he expects some response from Japanese authorities to calm markets. There were other macro developments contributing to the early weakness, as President Trump said that major European exporters will face an additional 10% tariff until European leaders warm up to his belief that Greenland poses a vital interest to U.S. national security. Despite the busy start, Treasuries spent the day near their opening levels with the long bond rising to a fresh high in the early afternoon before returning to its opening mark. Meanwhile, shorter tenors finished below their opening levels but above their morning lows. Crude oil bounced off its 50-day moving average (58.61) while the U.S. Dollar Index fell 0.8% to 98.61, sliding back below its 50-day (98.98) and 200-day (98.72) moving averages.
• Yield Check:
  • 2-yr: UNCH at 3.60%
  • 3-yr: +1 bp to 3.68%
  • 5-yr: +3 bps to 3.86%
  • 10-yr: +6 bps to 4.30%
  • 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. 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: +1.7% to $60.36/bbl
  • Gold: +3.7% to $4766.20/ozt
  • Copper: -0.3% to $5.81/lb
• Currencies:
  • EUR/USD: +0.6% to 1.1713
  • GBP/USD: UNCH at 1.3426
  • USD/CNH: UNCH at 6.9571
  • USD/JPY: +0.1% to 158.25
• The Day Ahead:
  • 7:00 ET: Weekly MBA Mortgage Index (prior 28.5%)
  • 8:30 ET: December Housing Starts (prior NA) and Building Permits (prior NA)
  • 10:00 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%)
• Treasury Auctions:
  • 13:00 ET: $13 bln 20-yr Treasury bond reopening results