Bond Market Update

Long End Lags Ahead of December PPI

• U.S. Treasuries are on track for a mixed start with relative strength in shorter tenors while the long end is expected to show an early continuation of yesterday's underperformance. Treasury futures faced some pressure in early evening action, but the losses were largely reversed during the first half of the European session. The night was jam-packed with the customary barrage of month-end economic reports from Asia and Europe. Japan's Tokyo CPI decelerated to 1.5% yr/yr in January, representing the first below-target (2.0%) reading since October 2024. In Europe, eurozone's flash reading of Q4 GDP (0.3%; expected 0.2%) was a touch better than expected due to above-consensus growth in Germany (0.3%; expected 0.2%), Italy (0.3%; expected 0.2%), and Spain (0.8%; expected 0.6%). The overnight session got a bit busier about an hour ago when President Trump confirmed that he will nominate Kevin Warsh to lead the Federal Reserve. Treasury futures are essentially unchanged since the news crossed. Today's session will feature the release of December PPI (Briefing.com consensus 0.2%; prior 0.2%) and Core PPI (Briefing.com consensus 0.3%; prior 0.0%) at 8:30 ET. Precious metals are giving back some of their massive gains from this month while crude oil is returning to $65/bbl. The U.S. Dollar Index is up 0.1% at 96.41.
• Yield Check:
  • 2-yr: -1 bp to 3.54%
  • 3-yr: -1 bp to 3.61%
  • 5-yr: UNCH at 3.81%
  • 10-yr: +2 bps to 4.25%
  • 30-yr: +4 bps to 4.89%

• News:
  • Senate reaches deal to keep government open, though a brief shutdown will take place over the weekend ahead of a House vote on Monday.
  • Fitch affirmed South Korea's AA- rating with a Stable outlook.
  • South Korea's trade officials met with their U.S. counterparts in Washington yesterday, but talks will continue today.
  • The CEO of Indonesia's IDX exchange resigned after this week's volatility that followed MSCI's flagging of Indonesia's stocks for a potential downgrade.
  • Japan's January Tokyo CPI was up 1.5% yr/yr (last 2.0%) and January Tokyo Core CPI was up 2.0% yr/yr (expected 2.2%; last 2.3%). December Retail Sales fell 0.9% yr/yr (expected 0.7%; last 1.1%) and December Industrial Production dipped 0.1% m/m (expected -0.4%; last -2.7%). December jobs/applications ratio rose to 1.19 from 1.18 (expected 1.18) and December Unemployment Rate remained at 2.6%, as expected. December Housing Starts decreased 1.3% yr/yr (expected -4.5%; last -8.5%) and Construction Orders jumped 20.2% yr/yr (last 9.5%).
  • South Korea's December Retail Sales rose 0.9% m/m (last -3.3%). December Industrial Production was up 1.7% m/m (expected 0.5%; last 0.6%) but down 0.3% yr/yr (expected -2.1%; last -1.4%).
  • Hong Kong's Q4 GDP expanded 1.0% qtr/qtr (last 0.7%), growing 3.8% yr/yr (last 3.8%).
  • Australia's Q4 PPI was up 0.8% qtr/qtr (expected 1.1%; last 1.0%), rising 3.5% yr/yr (last 3.5%). December Private Sector Credit was up 0.8% m/m (expected 0.6%; last 0.6%) and Housing Credit was up 0.7% m/m (last 0.6%).
  • Singapore's December Bank Lending reached SGD886.1 bln (last SGD873.1 bln).
  • Eurozone's Q4 GDP expanded 0.3% qtr/qtr (expected 0.2%; last 0.3%), growing 1.3% yr/yr (expected 1.2%; last 1.4%). December Unemployment Rate dipped to 6.2% from 6.3% (expected 6.3%).
  • Germany's flash January CPI was up 0.1% m/m (expected 0.0%; last 0.0%), rising 2.1% yr/yr (expected 2.0%; last 1.8%). December Import Price Index was down 0.1% m/m (expected -0.4%; last 0.5%), falling 2.3% yr/yr (expected -2.6%; last -1.9%). January Unemployment was unchanged (expected 4,000; last 3,000) and Unemployment Rate remained at 6.3%, as expected. Q4 GDP expanded 0.3% qtr/qtr (expected 0.2%; last 0.0%), growing 0.4% yr/yr (expected 0.3%; last 0.3%).
  • U.K.'s December Mortgage Approvals reached 61,010 (expected 65,000; last 64,070) and Mortgage Lending reached GBP4.60 bln (expected GBP4.50 bln; last GBP4.59 bln). December Net Lending to Individuals reached GBP6.10 bln, as expected (last GBP6.60 bln).
  • France's Q4 GDP expanded 0.2% qtr/qtr, as expected (last 0.5%), growing 1.1% yr/yr (expected 1.2%; last 0.9%). December PPI was up 0.2% m/m (last 2.8%), falling 2.0% yr/yr (last -1.5%). Q4 nonfarm payrolls dipped 0.1% qtr/qtr (last 0.0%).
  • Italy's Q4 GDP expanded 0.3% qtr/qtr (expected 0.2%; last 0.1%), growing 0.8% yr/yr (expected 0.5%; last 0.6%). December Unemployment Rate remained at 5.6% (expected 5.8%). December PPI was down 0.7% m/m (last 1.0%), falling 1.4% yr/yr (last -0.2%).
  • Spain's January CPI was down 0.4% m/m (expected -0.3%; last 0.3%) but up 2.4% yr/yr, as expected (last 2.9%). January Core CPI was up 2.6% yr/yr (last 2.6%). Q4 GDP expanded 0.8% qtr/qtr (expected 0.6%; last 0.6%), rising 2.6% yr/yr (expected 2.7%; last 2.8%). November Current Account surplus reached EUR210 mln (last surplus of EUR7.18 bln).
  • Swiss January KOF Leading Indicators decreased to 102.5 from 103.6 (expected 103.1).
• Commodities:
  • WTI Crude: -0.2% to $65.27/bbl
  • Gold: -4.4% to $5119.80/ozt
  • Copper: -2.7% to $6.034/lb
• Currencies:
  • EUR/USD: -0.4% to 1.1923
  • GBP/USD: -0.3% to 1.3766
  • USD/CNH: +0.1% to 6.9480
  • USD/JPY: +0.6% to 153.99
• Data out Today:
  • 8:30 ET: December PPI (Briefing.com consensus 0.2%; prior 0.2%) and Core PPI (Briefing.com consensus 0.3%; prior 0.0%)
  • 9:45 ET: January Chicago PMI (Briefing.com consensus 43.0; prior 43.5)