Bond Market Update

Intraday Losses Trimmed After In-Line FOMC Statement

• U.S. Treasuries retreated on Wednesday, but they inched up off session lows after the release of the January FOMC Statement, which did not contain any big surprises. The trading day started with relative weakness in longer tenors, but the short end briefly narrowed the gap during the session. The complex widened its starting losses as the day went on, reaching lows in reaction to the FOMC Statement, which did not call for any policy changes, but did show a change in the description of economic activity to "solid" from "moderate." However, Fed Chairman Powell's press conference was not unduly hawkish, allowing Treasuries to edge up off their lows into the close. The early selling briefly lifted the 5-yr yield past its January high (3.872%) before the late bounce. Crude oil climbed to its highest level since late September while the U.S. Dollar Index rose 0.2% to 96.41.
• Yield Check:
  • 2-yr: +1 bp to 3.58%
  • 3-yr: +1 bp to 3.65%
  • 5-yr: +3 bps to 3.84%
  • 10-yr: +3 bps to 4.25%
  • 30-yr: +3 bps to 4.86%

• News:
  • The Bank of Canada left its policy rate at 2.25%, as expected.
  • 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.
• Today's Data:
  • The weekly MBA Mortgage Index fell 8.5% to follow last week's 14.1% increase. The Refinance Index fell 15.7% while the Purchase Index was down 0.4%.
  • Weekly crude oil inventories decreased by 2.30 mln barrels after increasing by 3.60 mln barrels a week ago.
• Commodities:
  • WTI crude: +1.2% to $63.16/bbl
  • Gold: +4.3% to $5303.00/ozt
  • Copper: +1.0% to $5.92/lb
• Currencies:
  • EUR/USD: -0.8% to 1.1937
  • GBP/USD: -0.4% to 1.3794
  • USD/CNH: +0.2% to 6.9437
  • USD/JPY: +0.9% to 153.48
• The Day Ahead:
  • 8:30 ET: November Trade Balance (Briefing.com consensus -$43.5 bln; prior -$29.4 bln), weekly Initial Claims (Briefing.com consensus 205,000; prior 200,000), Continuing Claims (prior 1.849 mln), revised Q3 Productivity (Briefing.com consensus 4.9%; prior 4.9%) and revised Q3 Unit Labor Costs (Briefing.com consensus -1.9%; prior -1.9%)
  • 10:00 ET: November Factory Orders (Briefing.com consensus 0.5%; prior -1.3%) and November Wholesale Inventories (prior 0.5%)
  • 10:30 ET: Weekly natural gas inventories (prior -120 bcf)
• Treasury Auctions:
  • 13:00 ET: $44 bln 7-yr Treasury note auction results