Bond Market Update

Short End Leads Tuesday Dip

• U.S. Treasuries dipped on Tuesday, giving back some of their gains from Monday. The session was not particularly exciting, as Treasuries opened with slim losses that were extended during the day, keeping yields on 10s and 30s near their December highs. Treasuries tried to overcome their modestly lower start during the initial hour of action, but they found resistance near yesterday's closing levels even though the final reading of the S&P Global U.S. Services PMI (52.5) showed a deceleration from the flash reading (52.9) and the final reading for November (54.1). Treasuries reached their lowest levels in the late morning, briefly pushing the 30-yr yield to its highest level since early September, but a swift bounce returned action to levels seen at the cash start. Crude oil turned negative for the week after finding resistance at its 50-day moving average (58.84) while the U.S. Dollar Index rose 0.4% to 98.61.
• Yield Check:
  • 2-yr: +2 bps to 3.48%
  • 3-yr: +2 bps to 3.54%
  • 5-yr: +1 bp to 3.72%
  • 10-yr: +1 bp to 4.18%
  • 30-yr: +1 bp to 4.87%

• News:
  • The People's Bank of China said that monetary policy will be maintained at an appropriately loose level with reserve requirement ratio cuts and interest rate cut flexibility this year.
  • The Chinese government has reportedly started selling local government bonds to increase investment.
  • China's Ministry of Commerce will tighten control over exports of dual-use items to Japan.
  • Japan's December Monetary Base was down 9.8% yr/yr (expected -8.0%; last -8.7%).
  • Hong Kong's December Manufacturing PMI hit 51.9 (last 52.9).
  • India's December Services PMI hit 58.0 (expected 59.1; last 59.8).
  • Australia's December Services PMI hit 51.1 (expected 51.0; last 52.8). 
  • Eurozone's final December Services PMI hit 52.4 (expected 52.6; last 53.6).
  • Germany's final December CPI was unchanged m/m (expected 0.3%; last -0.2%), rising 1.8% yr/yr (expected 2.0%; last 2.3%). Final December Services PMI hit 52.7 (expected 52.6; last 53.1).
  • U.K.'s final December Services PMI hit 51.4 (expected 52.1; last 51.3). 
  • France's flash December CPI was up 0.1% m/m (expected 0.2%; last -0.2%), rising 0.8% yr/yr (expected 0.9%; last 0.9%). Final December Services PMI hit 50.1 (expected 50.2; last 51.4).
  • Italy's final December Services PMI hit 51.5 (expected 54.2; last 55.0).
  • Spain's final December Services PMI hit 57.1 (expected 54.8; last 55.6).
• Today's Data:
  • The S&P Global U.S. Services PMI hit 52.5 in the final reading for December, down from the flash reading (52.9) and down from the final November reading (54.1).
• Commodities:
  • WTI crude: -2.0% to $57.13/bbl
  • Gold: +1.0% to $4496.30/ozt
  • Copper: +1.3% to $6.06/lb
• Currencies:
  • EUR/USD: -0.2% to 1.1692
  • GBP/USD: -0.3% to 1.3503 
  • USD/CNH: UNCH at 6.9814
  • USD/JPY: +0.1% to 156.58
• The Day Ahead:
  • 7:00 ET: Weekly MBA Mortgage Index (prior NA)
  • 8:15 ET: December ADP Employment Change (Briefing.com consensus 45,000; prior -32,000)
  • 10:00 ET: December ISM Non-Manufacturing Index (Briefing.com consensus 52.2%; prior 52.6%), November Factory Orders (Briefing.com consensus -1.0%; prior NA), November job openings (prior 7.670 mln), and November Business Inventories (prior NA)
  • 10:30 ET: Weekly crude oil inventories (prior 1.93 mln)