Bond Market Update

Lower Start Ahead

• U.S. Treasuries are on track for a slightly lower start with shorter tenors expected to pace the early weakness, but the entire complex is likely to see a volatile open, given the looming release of the Employment Situation report for December (Briefing.com consensus 55,000; prior 64,000), which will be released alongside Housing Starts and Building Permits for September and October. Treasury futures began inching lower in early evening action, continuing their slow retreat into the night while other sovereign debt has traded generally higher. Overnight action saw the release of China's in-line CPI report for December (0.8% yr/yr) and a slightly better-than-expected November Retail Sales report (0.2%; expected 0.1%) from the eurozone. Also of note, President Trump said that he ordered the purchase of $200 bln in mortgage-backed securities, aiming to put pressure on mortgage rates. Crude oil hovers just below its 50-day moving average (58.64) while the U.S. Dollar Index is up 0.1% at 99.06.
• Yield Check:
  • 2-yr: +2 bps to 3.51%
  • 3-yr: +2 bps to 3.57%
  • 5-yr: +1 bp to 3.75%
  • 10-yr: +1 bp to 4.19%
  • 30-yr: -1 bp to 4.85%

• News:
  • The House of Representatives passed a three-year extension of ACA tax credits.
  • The Wall Street Journal reported that China has stopped granting licenses for rare earth exports to Japan. Japan's Finance Minister Katayama is expected to discuss the issue with U.S. officials during a visit next week.
  • TD expects the Reserve Bank of Australia to announce a 25-basis point rate hike in February.
  • European Central Bank policymaker Centeno is reportedly looking to run to replace Vice President de Guindos.
  • China's December CPI was up 0.2% m/m (last -0.1%), rising 0.8% yr/yr, as expected (last 0.7%). December PPI was down 1.9% yr/yr (expected -2.0%; last -2.2%).
  • Japan's November Household Spending rose 6.2% m/m (expected 2.7%; last -3.5%), increasing 2.9% yr/yr (expected -1.0%; last -3.0%). November Leading Index rose to 110.5 from 109.8 (expected 110.4) and Coincident Indicator was down 0.7% m/m (expected 0.5%; last 1.0%).
  • South Korea's November Current Account reached $12.24 bln (last $6.81 bln).
  • Eurozone's November Retail Sales rose 0.2% m/m (expected 0.1%; last 0.3%), increasing 2.3% yr/yr (expected 1.6%; last 1.9%).
  • Germany's November trade surplus reached EUR13.1 bln (expected surplus of EUR16.3 bln; last surplus of EUR17.2 bln) as imports grew 0.8% m/m (expected 0.2%; last -1.5%) and Exports fell 2.5% m/m (expected 0.0%; last 0.3%). November Industrial Production was up 0.8% m/m (expected -0.6%; last 2.0%), rising 0.8% yr/yr (last 1.1%).
  • France's November Consumer Spending was down 0.3% m/m (expected -0.1%; last 0.5%) and Industrial Production dipped 0.1% m/m (expected -0.2%; last 0.2%).
  • Italy's November Retail Sales rose 0.5% m/m (expected 0.3%; last 0.5%), increasing 1.3% yr/yr (last 1.3%).
  • Spain's November Industrial Production was up 4.5% yr/yr (last 1.2%). December Business Confidence fell to -3.5 from -3.2.
  • Swiss December Unemployment Rate remained at 3.0%, as expected.
• Commodities:
  • WTI Crude: +0.7% to $58.19/bbl
  • Gold: +0.3% to $4474.20/ozt
  • Copper: +1.7% to $5.894/lb
• Currencies:
  • EUR/USD: -0.1% to 1.1641
  • GBP/USD: -0.2% to 1.3415
  • USD/CNH: UNCH at 6.9809
  • USD/JPY: +0.5% to 157.68
• Data out Today:
  • 8:30 ET: December Nonfarm Payrolls (Briefing.com consensus 55,000; prior 64,000), Nonfarm Private Payrolls (Briefing.com consensus 50,000; prior 69,000), Unemployment Rate (Briefing.com consensus 4.5%; prior 4.6%), Average Hourly Earnings (Briefing.com consensus 0.3%; prior 0.1%), Average Workweek (Briefing.com consensus 34.3; prior 34.3), September Housing Starts (Briefing.com consensus 1.320 mln; prior 1.307 mln), September Building Permits (Briefing.com consensus 1.340 mln; prior 1.312 mln), October Housing Starts (Briefing.com consensus 1.340 mln), and October Building Permits (Briefing.com consensus 1.355 mln)
  • 10:00 ET: Preliminary January University of Michigan Consumer Sentiment (Briefing.com consensus 53.0; prior 52.9)