Bond Market Update

Charging Higher Ahead of January CPI

• U.S. Treasuries had a strong showing on Thursday with some help from weakness in equities and an impressive 30-yr bond auction. The rally sent yields on the 5-yr note and longer tenors to fresh lows for the month with the 30-yr yield finishing at its lowest level since early December ahead of tomorrow's release of January CPI (Briefing.com consensus 0.3%; prior 0.3%). Treasuries started the day with some relative strength in longer tenors after a night that also saw outperformance in Japan's ultra long JGBs. The higher start was followed by a brief pullback attempt, but the weak showing in stocks contributed to a steady bid in Treasuries. Gains in the 5-yr note and longer were extended after today's 30-yr bond sale made for a great finish to this week's otherwise mixed auction slate. Precious metals faced renewed pressure while crude oil fell back toward its 200-day moving average (62.35) after the IEA trimmed its demand growth forecast for the year. The U.S. Dollar Index ticked up 0.1% to 96.93.
• Yield Check:
  • 2-yr: -4 bps to 3.47%
  • 3-yr: -6 bps to 3.51%
  • 5-yr: -7 bps to 3.67%
  • 10-yr: -7 bps to 4.10%
  • 30-yr: -8 bps to 4.73%

• News:
  • The International Energy Agency lowered its oil demand growth forecast for 2026
  • Unfunded portions of the Department of Homeland Security are expected to shut down after the U.S. Senate failed to pass a funding vote ahead of a planned recess.
  • There was growing speculation that the Bank of Korea will launch a quantitative easing program.
  • Reserve Bank of Australia Governor Bullock defended the RBA's recent rate hike in a parliamentary testimony.
  • French President Macron urged EU leaders to come up with a plan to improve competitiveness by the summer.
  • Japan's January PPI was up 0.2% m/m, as expected (last 0.1%), rising 2.3% yr/yr, as expected (last 2.4%).
  • India's January CPI was up 2.75% (expected 2.40%; last 1.33%).
  • Australia's February MI Inflation Gauge accelerated to 5.0% from 4.6%.
  • U.K.'s Q4 GDP expanded 0.1% qtr/qtr (expected 0.2%; last 0.1%), growing 1.0% yr/yr (expected 1.2%; last 1.2%).
• Today's Data:
  • Initial jobless claims for the week ending February 7 decreased by 5,000 to 227,000 (Briefing.com consensus: 230,000). Continuing jobless claims for the week ending January 31 increased by 21,000 to 1.862 million.
    • The key takeaway from the report is its steady messaging that layoff activity is low and that hiring activity is slow.
  • Existing home sales decreased 8.8% month-over-month in January to a seasonally adjusted annual rate of 3.91 million (Briefing.com consensus 4.21 million) from a downwardly revised 4.27 million (from 4.35 million) in December. Sales were down 4.4% on a year-over-year basis.
    • The key takeaway from the report is that the existing home market remains supply constrained. That is pushing up prices and mitigating some of the affordability benefits linked to wage growth and lower mortgage rates.
  • Weekly natural gas inventories decreased by 249 bcf after decreasing by 360 bcf a week ago.
  • $25 bln 30-year Treasury bond auction results (prior 12-auction average):
    • High yield: 4.750% (4.769%).
    • Bid-to-cover: 2.66 (2.36).
    • Indirect bid: 69.9% (63.4%).
    • Direct bid: 24.2% (23.5%).
• Commodities:
  • WTI crude: -2.7% to $62.88/bbl
  • Gold: -2.9% to $4949.30/ozt
  • Copper: -3.0% to $5.79/lb
• Currencies:
  • EUR/USD: UNCH at 1.1869
  • GBP/USD: UNCH at 1.3624
  • USD/CNH: -0.1% to 6.8967
  • USD/JPY: -0.2% to 152.91
• The Day Ahead:
  • 8:30 ET: January CPI (Briefing.com consensus 0.3%; prior 0.3%) and Core CPI (Briefing.com consensus 0.3%; prior 0.2%)