Bond Market Update

Long End Lags as FOMC Looms

• U.S. Treasuries are on track for a modestly lower start in longer tenors while the short end is little changed ahead of the 14:00 ET release of the FOMC Statement for January, though the directive is not expected to call for immediate policy changes. Treasury futures spent the night in a sideways range, slipping to lows shortly after the start of the European session. The overnight session featured just a small slate of data, including hotter-than-expected December CPI from Australia, which increased expectations for a rate hike announcement next week. Japan sold 40-yr JGBs to good demand, with yields falling after the auction, which was a welcomed sight. The yen continues holding near a three-month high against the dollar after a three-day rally, which started with speculation about an impending intervention. However, the fears have been enough to boost the Japanese currency without an official move from Japanese or U.S. authorities. President Trump was asked about recent dollar weakness last evening but said that he is not concerned about the development. Crude oil trades just above its 200-day moving average (62.26), revisiting levels from early October, while the U.S. Dollar Index is flat at 96.20.
• Yield Check:
  • 2-yr: UNCH at 3.57%
  • 3-yr: UNCH at 3.64%
  • 5-yr: +2 bps to 3.83%
  • 10-yr: +2 bps to 4.24%
  • 30-yr: +3 bps to 4.86%

• News:
  • Indonesia's stock market lost more than 7.0% after MSCI paused additions to its index due to "fundamental investability issues."
  • European Central Bank policymaker Cipollone said the European economy has been resilient and that some upside data surprises are expected.
  • Australia's December CPI was up 3.6% yr/yr (expected 3.4%; last 3.5%).
  • India's December Industrial Production was up 7.8% yr/yr (expected 5.5%; last 7.2%) and December Manufacturing Output was up 8.1% m/m (last 8.5%).
  • Germany's February GfK Consumer Climate ticked up to -24.1 from -26.9 (expected -25.5).
  • Italy's January Consumer Confidence rose to 96.8 from 96.6 (expected 97.0) and Business Confidence rose to 89.2 from 88.5 (expected 89.0).
  • Swiss January ZEW Expectations fell to -4.7 from 6.2.
• Commodities:
  • WTI Crude: +0.7% to $62.84/bbl
  • Gold: +3.6% to $5265.00/ozt
  • Copper: +1.0% to $5.92/lb
• Currencies:
  • EUR/USD: -0.5% to 1.1977
  • GBP/USD: -0.4% to 1.3789
  • USD/CNH: +0.2% to 6.9428
  • USD/JPY: +0.3% to 152.56
• Data out Today:
  • 7:00 ET: Weekly MBA Mortgage Index (actual -8.5%; prior 14.1%)
  • 10:30 ET: Weekly crude oil inventories (prior +3.60 mln)
  • 14:00 ET: January FOMC Decision (Briefing.com consensus 3.50-3.75%; prior 3.50-3.75%)