Bond Market Update

2-Yr Yield Ends at Multi-Year Low

• U.S. Treasuries enjoyed a strong finish to the week, sending yields on the 5-yr note and longer tenors to their lowest closing levels since early December while the 2-yr yield settled at its lowest level since September 2022, though it remained above its 2025 intraday low that was notched on October 17 (3.378%). The trading day started with some relative strength up front, but the entire complex rallied once the market received a good CPI report for January, which showed a cooler-than-expected increase at the headline level (0.2%; Briefing.com consensus 0.3%) that resulted in a deceleration in the year-over-year rate to 2.4% from 2.7%. Core CPI (0.3%), matched expectations, with the year-over-year growth rate decelerating to 2.5% from 2.6%. Treasuries added to their post-data gains in morning trade, spending the afternoon in a sideways range just below their highs. Next trading week will be shortened by a day due to the Presidents Day holiday on Monday, but the next few days will still bring a big batch of economic data, including the advance reading of Q4 GDP (Briefing.com consensus 3.0%; prior 4.3%) on Thursday morning. Crude oil recorded a modest loss for the day and for the week while the U.S. Dollar Index spent the day near its unchanged level at 96.92, shedding 0.7% for the week.
• Yield Check:
  • 2-yr: -6 bps to 3.41% (-9 bps this week)
  • 3-yr: -6 bps to 3.45% (-12 bps this week)
  • 5-yr: -6 bps to 3.61% (-15 bps this week)
  • 10-yr: -5 bps to 4.06% (-15 bps this week)
  • 30-yr: -3 bps to 4.70% (-16 bps this week)

• News:
  • An adviser to Japan's Prime Minister Takaichi said that the Bank of Japan may forego a rate hike in March but is likely to raise rates later in the year.
  • Officials from the U.S. and Taiwan formalized a trade deal.
  • European Central Bank policymaker Kazaks said that the ECB is in a good position regarding rates while policymaker Nagel said that geopolitical "rivalries" could result in higher inflation.
  • China's January New Loans reached CNY4.71 trln (expected CNY5.00 trln; last CNY910 bln), January outstanding loans grew 6.1% yr/yr (expected 6.2%; last 6.4%), and January total social financing reached CNY7.22 trln (expected CNY7.05 trln; last CYN2.21 trln). January House Prices were down 3.1% yr/yr (last -2.7%).
  • South Korea's January Import Price Index was down 1.2% yr/yr (last 0.5%) while export price index was up 7.8% yr/yr (last 5.0%).
  • New Zealand's January Business PMI hit 55.2 (last 56.1). December External Migration & Visitors rose 7.0% yr/yr (last 8.2%). Q1 Inflation Expectations accelerated to 2.4% from 2.3%.
  • Eurozone's Q4 GDP expanded 0.3% qtr/qtr, as expected (last 0.3%), growing 1.3% yr/yr, as expected (last 1.4%). Q4 Employment increased by 0.2% qtr/qtr (expected 0.1%; last 0.2%), rising 0.7% yr/yr (expected 0.6%; last 0.6%). December trade surplus reached EUR12.6 bln (expected EUR11.8 bln; last EUR9.3 bln).
  • Germany's January WPI was up 0.9% m/m (expected 0.1%; last -0.2%), rising 1.2% yr/yr (last 1.2%).
  • Spain's January CPI was down 0.4% m/m, as expected (last 0.3%) but up 2.3% yr/yr (expected 2.4%; last 2.9%). January Core CPI was up 2.6% yr/yr, as expected (last 2.6%).
  • Swiss January CPI was down 0.1% m/m (expected 0.0%; last 0.0%) but up 0.1% yr/yr, as expected (last 0.1%).
• Today's Data: 
  • Total CPI increased 0.2% month-over-month in January (Briefing.com consensus: 0.3%) and was up 2.4% year-over-year, versus 2.7% for the 12 months ending in December. Core CPI, which excludes food and energy, increased 0.3% month-over-month (Briefing.com consensus: 0.3%) and was up 2.5% year-over-year, versus 2.6% for the 12 months ending in December.
    • The key takeaway from the report is that it showed some encouraging disinflation on a year-over-year basis, which the market will perceive as an opening for the Fed to consider additional rate cuts even with GDP growth running above potential.
• Commodities:
  • WTI crude: -0.1% to $62.85/bbl
  • Gold: +1.9% to $5044.10/ozt 
  • Copper: +0.2% to $5.80/lb
• Currencies:
  • EUR/USD: UNCH at 1.1867
  • GBP/USD: +0.2% to 1.3645
  • USD/CNH: +0.1% to 6.9015
  • USD/JPY: +0.1% to 152.78
• The Week Ahead:
  • Monday: Bond and equity markets closed for Presidents Day
  • Tuesday: February Empire State Manufacturing survey (Briefing.com consensus 7.1; prior 7.7) and February NAHB Housing Market Index (Briefing.com consensus 38; prior 37) at 8:30 ET
  • Wednesday: Weekly MBA Mortgage Index (prior -0.3%) at 7:00 ET; December Housing Starts (Briefing.com consensus 1.320 mln; October 1.246 mln) and December Building Permits (Briefing.com consensus 1.412 mln; October 1.330 mln), December Durable Orders (Briefing.com consensus -2.6%; prior 5.3%) and Orders ex-transportation (Briefing.com consensus 0.3%; prior 0.5%) at 8:30 ET; January Industrial Production (Briefing.com consensus 0.4%; prior 0.4%) and Capacity Utilization (Briefing.com consensus 76.5%; prior 76.3%) at 9:15 ET; $16 bln 20-yr Treasury bond auction results at 13:00 ET; January FOMC Minutes at 14:00 ET; and December Net Long-Term TIC Flows (prior $220.2 bln) at 16:00 ET
  • Thursday: Weekly Initial Claims (Briefing.com consensus 225,000; prior 227,000), Continuing Claims (prior 1.862 mln), December Trade Balance (Briefing.com consensus -$55.8 bln; prior -$56.8 bln), and February Philadelphia Fed survey (Briefing.com consensus 8.5; prior 12.6) at 8:30 ET; January Pending Home Sales (Briefing.com consensus 1.4%; prior -9.3%) at 10:00 ET; weekly natural gas inventories (prior -249 bcf) at 10:30 ET; and weekly crude oil inventories (prior +8.53 mln) at 12:00 ET
  • Friday: December Personal Income (Briefing.com consensus 0.3%; prior 0.3%), Personal Spending (Briefing.com consensus 0.2%; prior 0.5%), PCE Prices (Briefing.com consensus 0.3%; prior 0.2%), core PCE Prices (Briefing.com consensus 0.4%; prior 0.2%), advance Q4 GDP (Briefing.com consensus 3.0%; prior 4.3%) and advance Q4 Chain Deflator (Briefing.com consensus 3.3%; prior 3.8%) at 8:30 ET; flash February S&P Global U.S. Manufacturing PMI (prior 52.4) and flash February S&P Global U.S. Services PMI (prior 52.7) at 9:45 ET; final February University of Michigan Consumer Sentiment survey (Briefing.com consensus 57.3; prior 57.3) and December New Home Sales (Briefing.com consensus 714,000; prior NA) at 10:00 ET