Bond Market Update

Longer Tenors Show Resilience

• U.S. Treasuries finished Thursday in mixed fashion, as the long bond overcame its modest starting loss while the 5-yr note and shorter tenors settled in the red. Treasuries slipped out of the gate, extending their initial losses after today's slate of economic data pointed to persistent strength in the economy with the Q3 GDP being revised up to 4.4% from 4.3% (Briefing.com consensus 4.3%) while weekly Initial Claims remained at just 200,000. Treasuries hit session lows just as the market received the Personal Income/Outlays report for October and November, which showed that the Core PCE Price Index was at 2.8% in November, up slightly from October, but unchanged from September. The market began rising off lows in the late morning with the 30-yr bond leading the bounce. The long bond eventually turned positive, returning its yield to levels seen about a week ago. This was a positive for sentiment that was bruised by Tuesday's retreat, which sent the 30-yr yield to levels last seen in early September. Treasuries finished near their rebound highs with 10s and 30s settling in the green while shorter tenors recorded slim losses. Crude oil returned to little changed for the week while the U.S. Dollar Index fell 0.4% to 98.36.
• Yield Check:
  • 2-yr: +1 bp to 3.61%
  • 3-yr: +2 bps to 3.68%
  • 5-yr: +2 bps to 3.85%
  • 10-yr: UNCH at 4.25%
  • 30-yr: -2 bps to 4.85%

• News:
  • Expectations for a near-term rate hike from the Bank of Japan increased, though the BoJ is expected to hold its policy steady tonight.
  • German Chancellor Merz called for "significant" investment in defense.
  • Bundesbank expects only modest growth in the German economy in Q1.
  • Japan's December trade surplus reached JPY105.7 bln (expected JPY357.0 bln; last JPY316.7 bln) as imports grew 5.3% yr/yr (expected 3.6%; last 1.3%) and exports rose 5.1% yr/yr (expected 6.1%; last 6.1%).
  • South Korea's Q4 GDP contracted 0.3% qtr/qtr (expected 0.1%; last 1.3%) but was up 1.5% yr/yr (expected 1.9%; last 1.8%).
  • Hong Kong's December CPI was up 0.3% m/m (last 0.0%), rising 1.4% yr/yr (last 1.2%).
  • Australia's December employment increased by 65,200 (expected 28,300; last -28,700) and full employment increased by 54,800 (last -65,300). December Unemployment Rate fell to 4.1% from 4.3% (expected 4.4%) and Participation Rate ticked up to 66.7% from 66.6% (expected 66.8%).
  • New Zealand's December Electronic Card Retail Sales were down 0.1% m/m (last 1.2%), falling 0.5% yr/yr (last 1.6%).
  • U.K.'s December Public Sector Net Borrowing reached GBP11.58 bln (expected GBP13.40 bln; last GBP10.49 bln). January CBI Distributive Trades Survey rose to -17 from -44 (expected -35).
• Today's Data:
  • Initial jobless claims for the week ending January 17 were just 200,000 (Briefing.com consensus: 200,000), up 1,000 from the prior week's revised level. Continuing jobless claims for the week ending January 10 were 1.849 million, down 26,000 from the prior week's revised level.
    • The key takeaway from the report is that the low level of initial jobless claims substantiates the view that the labor market is still operating in a low-firing environment, which is supportive for consumer spending activity and the growth outlook.
  • Q3 real GDP was revised slightly higher to 4.4% (Briefing.com consensus: 4.3%) from the advance estimate of 4.3%, with an upward revision to exports and investment superseding a slight downward revision to consumer spending. The GDP Deflator was unrevised at 3.8% (Briefing.com consensus: 3.7%).
    • The key takeaway from the report is that it is a dated and little-changed report, so its market-moving capacity is nil; however, it is a headline reminder that the economy was running on the hotter side of things in the third quarter.
  • The Bureau of Economic Analysis released the Personal Income/Outlays report for November alongside the delayed report for October. In November, Personal Income increased 0.3% month-over-month (Briefing.com consensus 0.4%) after a 0.1% increase in October (Briefing.com consensus 0.3%). Personal spending was up 0.5% in November (Briefing.com consensus 0.4%) after also increasing 0.5% in October (Briefing.com consensus 0.4%). The PCE Price Index was up 0.2% month-over-month in October and November, as expected, while the core PCE Price Index was also up 0.2% for both months, which was also expected. On a year-over-year basis, the PCE Price Index decelerated to 2.7% in October but edged back up to 2.8% in November. The Core PCE Price Index also decelerated to 2.7% in October and edged back up to 2.8% in November.
    • The key takeaway from the report is that the core PCE Price Index, which is the Fed's preferred inflation gauge, was at 2.8% in November, essentially unchanged from September. As a result, this report should not alter the Fed's outlook since the inflation picture remains largely unchanged.
  • Weekly natural gas inventories decreased by 120 bcf after decreasing by 71 bcf a week ago.
  • Weekly crude oil inventories increased by 3.60 mln barrels after increasing by 3.39 mln barrels a week ago.
• Commodities:
  • WTI crude: -2.1% to $59.36/bbl
  • Gold: +1.6% to $4913.60/ozt
  • Copper: +0.2% to $5.78/lb
• Currencies:
  • EUR/USD: +0.5% to 1.1745
  • GBP/USD: +0.5% to 1.3492
  • USD/CNH: +0.1% to 6.9646
  • USD/JPY: +0.1% to 158.41
• The Day Ahead:
  • 9:45 ET: 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)
  • 10:00 ET: Final January University of Michigan Consumer Sentiment (Briefing.com consensus 54.0; prior 54.0)