Bond Market Update

Market Keeps Calm and Carries On

• U.S. Treasuries registered gains in the overnight session, comforted by the calm seen in Japan's bond market despite speculation that the LDP's commanding victory in last weekend's snap election could stoke additional fiscal stimulus. Those gains persisted into today's cash session, courtesy mostly of a weak retail sales report for December and the recognition that employment costs moderated in Q4. Those twin reports offset some hawkish-sounding policy comments from Cleveland Fed President Hammack and Dallas Fed President Logan, both of whom are FOMC voters. Yields fell across the curve in a bull flattener trade led by the long end in front of Wednesday's release of the January Employment Situation report.
• Yield Check:
  • 2-yr: -3 bps to 3.45%
  • 3-yr: -4 bps to 3.51%
  • 5-yr: -4 bps to 3.70%
  • 10-yr: -5 bps to 4.15%
  • 30-yr: -6 bps to 4.79%
• News:
  • President Trump and President Xi are expected to meet in China in early April, but a White House official reportedly said that meeting has not yet been finalized.
  • Republicans are preparing a continuing resolution on DHS funding, but passage is not guaranteed. Politico
  • House Democrats will force a vote Wednesday to revoke President Trump's tariffs on Canada, but the vote is largely symbolic because President Trump will veto it. Politico
  • House passes bipartisan bill to reduce regulations and increase housing supply. The Senate will likely make changes to the bill. The Hill
  • President Trump in an interview says he might send another aircraft carrier to Middle East if talks with Iran fail, according to Axios
  • The White House wants data center agreements with technology companies so energy prices do not increase for consumers. Politico
  • The Trump administration plans to remove the legal basis for federal greenhouse gas regulation this week. WSJ
  • Cleveland Fed President Hammack (FOMC voter) says, based on her forecast, the Fed could be on hold for quite some time.
  • Dallas Fed President Logan (FOMC voter) says she is more worried right now about inflation remaining stubbornly high.
  • ECB member Villeroy will be resigning from his post on June 1, 2026, versus the officially scheduled end date of October 2027.
  • UK Prime Minister Starmer has reportedly garnered support to remain in power, although questions remain surrounding his leadership due to the associated fallout from the Epstein scandal.
  • Taiwan's top trade negotiator said it would be impossible to relocate 40% of the island's semiconductor supply chain to the U.S. before the end of President Trump's second term, according to CNBC.
• Today's Data:
  • Total retail sales were unchanged month-over-month in December (Briefing.com consensus: 0.4%) following a 0.6% increase in November. Excluding autos, retail sales were also unchanged month-over-month (Briefing.com consensus: 0.4%) following a downwardly revised 0.4% increase (from 0.5%) in November.
    • The key takeaway from the report is that spending on goods was down across most discretionary categories following some decent-sized gains in November. That will foment some concern about consumer spending fatigue at the end of last year, which of course included the holiday shopping period.
  • The Q4 Employment Cost Index increased 0.7% (Briefing.com consensus: 0.8%), seasonally adjusted, for the three-month period ending in December 2025, following a 0.8% increase for the three-month period ending in September 2025.
    • The key takeaway from the report is that there was some moderation in employment costs on a year-over-year basis that will help temper inflation worries.
  • December Import Prices (Actual 0.1%) and Nonfuel Import Prices (Actual 0.4%); Export Prices (Actual 0.3%) and Nonagricultural Exports (Actual 0.3%)
  • November Business Inventories (Actual 0.1%; Briefing.com consensus 0.2%; prior revised to 0.2% from 0.3%)
• Auction Results
  • The $58 billion 3-yr note auction saw a high yield of 3.518% that stopped through the when-issued yield of 3.519% by the tiniest of margins. There wasn't as much takedown of the issuance by indirect bidders as prior auctions, but overall dollar demand was effectively in line with the prior 12-auction average.
• Commodities:
  • WTI crude: -0.5% to $64.01/bbl
  • Gold: -1.0% to $5027.50/ozt
  • Copper: -1.0% to $5.90/lb
• Currencies:
  • EUR/USD: -0.1% to 1.1900
  • GBP/USD: -0.3% to 1.3655
  • USD/CNH: flat at 6.9127
  • USD/JPY: -1.0% to 154.30
• The Day Ahead:
  • 07:00 ET: MBA Mortgage Applications Index (prior -8.9%)
  • 08:30 ET: January nonfarm payrolls (Briefing.com consensus: 68K; prior 50K), nonfarm private payrolls (Briefing.com consensus: 60K; prior 37K), unemployment rate (Briefing.com consensus: 4.4%; prior 4.4%), avg. hourly earnings (Briefing.com consensus: 0.3%; prior 0.3%), and avg. workweek (Briefing.com consensus: 34.2; prior 34.2)
  • 10:30 ET: EIA crude oil inventories (prior -3.46M)
  • 14:00 ET: January Treasury Budget (Briefing.com consensus: -$190.0B; prior -$144.7B)
• Treasury Auctions:
  • 13:00 ET: $42 bln 10-yr Treasury note auction results