Bond Market Update

Trimming Midweek Gains

• U.S. Treasuries are on track for a lower start with longer tenors expected to show relative weakness in the early going after outperforming during yesterday's advance. Treasury futures faced some pressure in early evening action, but that weakness was reversed as the night went on. However, renewed pressure showed up during the European session, driving Treasuries to lows alongside selling in other sovereign debt. The overnight session brought a big batch of data, but President Trump got the market's attention when he said that the U.S. military budget should be increased by about 50% to $1.5 trillion in 2027. The U.S. session will feature a few economic reports, including preliminary Q3 Productivity (Briefing.com consensus 2.5%; prior 3.3%) and preliminary Q3 Unit Labor Costs (Briefing.com consensus 0.8%; prior 1.0%) at 8:30 ET. Crude oil is on the rise while the U.S. Dollar Index is up 0.1% at 98.79.
• Yield Check:
  • 2-yr: +1 bp to 3.48%
  • 3-yr: +2 bps to 3.54%
  • 5-yr: +2 bps to 3.71%
  • 10-yr: +2 bps to 4.16%
  • 30-yr: +2 bps to 4.84%

• News:
  • President Trump will deliver the State of the Union address on February 24.
  • Shanghai Securities News reported that Chinese investors are rushing into equity funds amid weakness in bond prices.
  • Reserve Bank of Australia Deputy Governor Hauser said that the last interest rate cut of the cycle has likely been made.
  • Bank of England's Decision Maker Panel lowered its year-ahead CPI forecast to 3.2% from 3.4% while three-year outlook was reduced to 2.9% from 3.0%.
  • European Central Bank policymaker Pereira said that price stability is in place and there is no reason to make any changes to policy at this time, echoing a common sentiment shared among ECB policymakers.
  • Japan's November Overall Wage Income was up 0.5% yr/yr (expected 2.3%; last 2.5%) and November Overtime Pay rose 1.2% yr/yr (last 2.1%). December Household Confidence dipped to 37.2 from 37.5 (expected 37.8).
  • Australia's November trade surplus reached AUD2.936 bln (expected surplus of AUD5.140 bln; last surplus of AUD4.353 bln as imports grew 0.2% m/m (last 2.4%) and exports fell 2.9% m/m (last 2.8%).
  • Eurozone's December Business and Consumer Survey fell to 96.7 from 97.1 (expected 97.0). November PPI was up 0.5% m/m (expected 0.4%; last 0.1%) but down 1.7% yr/yr (expected -1.9%; last -0.5%). November Unemployment Rate dipped to 6.3% from 6.4% (expected 6.4%).
  • Germany's November Factory Orders rose 5.6% m/m (expected -0.9%; last 1.6%).
  • U.K.'s December Halifax House Price Index was down 0.6% m/m (expected 0.1%; last -0.1%) but up 0.3% yr/yr (expected 1.1%; last 0.6%).
  • France's November trade deficit reached EUR4.2 bln (expected deficit of EUR4.3 bln; last deficit of EUR3.5 bln) and November Current Account deficit reached EUR800 mln (last surplus of EUR1.40 bln).
  • Italy's November Unemployment Rate dipped to 5.7% from 5.8% (expected 6.0%).
  • Swiss December CPI was unchanged m/m, as expected (last -0.2%), rising 0.1% yr/yr, as expected (last 0.0%).
• Commodities:
  • WTI Crude: +1.7% to $56.92/bbl
  • Gold: -0.6% to $4436.70/ozt
  • Copper: +0.1% to $5.868/lb
• Currencies:
  • EUR/USD: UNCH at 1.1671
  • GBP/USD: -0.1% to 1.3438
  • USD/CNH: -0.2% to 6.9799
  • USD/JPY: UNCH at 156.74
• Data out Today:
  • 8:30 ET: Preliminary Q3 Productivity (Briefing.com consensus 2.5%; prior 3.3%), preliminary Q3 Unit Labor Costs (Briefing.com consensus 0.8%; prior 1.0%), October Trade Balance (Briefing.com consensus -$61.3 bln; prior -$59.6 bln), weekly Initial Claims (Briefing.com consensus 217,000; prior 199,000), and Continuing Claims (prior 1.866 mln) · 10:00 ET: October Wholesale Inventories (Briefing.com consensus 0.2%; prior 0.5%)
  • 10:30 ET: Weekly natural gas inventories (prior -38 bcf)
  • 15:00 ET: November Consumer Credit (Briefing.com consensus $10.3 bln; prior $9.2 bln)