Bond Market Update

Short End Lags After Long Weekend

• U.S. Treasuries started the holiday-shortened week with a modest gain in the 30-yr bond while the 2-yr note underperformed, giving back a chunk of its solid gain from Friday. The entire complex started the day in positive territory after a night that lacked the participation of markets in China, Hong Kong, Singapore, and South Korea due to the Lunar New Year. The higher start briefly pressured yields to fresh lows for the month, but resistance was found after the upbeat open sent the 2-yr yield toward its low from October (3.378%). Treasuries backed down from their highs immediately after the start with the 2-yr note continuing its steady reversal into the close while the 10-yr note found support near its unchanged level in mid-morning action, remaining little changed for the rest of the session. The market received just two economic reports that did not invite a noteworthy reaction, but tomorrow's session will feature a full slate of data and a $16 bln 20-yr bond auction at 13:00 ET. Crude oil fell toward its 200-day moving average (62.41) while the U.S. Dollar Index rose 0.3% to 97.16.
• Yield Check:
  • 2-yr: +3 bps to 3.44%
  • 3-yr: +2 bps to 3.47%
  • 5-yr: +1 bp to 3.62%
  • 10-yr: UNCH at 4.05%
  • 30-yr: -2 bps to 4.68%

• News:
  • Fed Governor Bowman supports three rate cuts in 2026 due to a weakening labor market.
  • Japan's Q4 GDP report, which was released on Sunday evening, disappointed, showing growth of just 0.1% quarter-over-quarter (expected 0.4%) while the year-over-year reading was up 0.2% (expected 1.6%). The report pressured rate hike expectations for March, but the market remains confident that a hike will be announced in April.
  • Sweden's finance minister said that his country has no plans to adopt the euro in the coming years.
  • Japan's December Tertiary Industry Activity Index rose to 8.40 from -2.50.
  • New Zealand's January FPI was up 2.5% m/m (last -0.3%).
  • Eurozone's February ZEW Economic Sentiment fell to 39.4 from 40.8 (expected 45.7).
  • Germany's February ZEW Economic Sentiment rose to 58.3 from 56.9 (expected 65.8) and ZEW Current Conditions rose to -65.9 from -72.7 (expected -65.7). January CPI was up 0.1% m/m, as expected (last 0.0%), rising 2.1% yr/yr, as expected (last 1.8%).
  • U.K.'s December Average Earnings Index + Bonus rose 4.2% yr/yr (expected 4.6%; last 4.6%). December three-month employment increased by 52,000 (last 82,000) and December Unemployment Rate rose to 5.2% from 5.1%, as expected. January Claimant Count increased by 28,600 (expected 22,800; last 2,700). Q3 Labour Productivity was up 1.1% (expected -0.6%; last -0.5%).
  • Italy's December trade surplus reached EUR6.037 bln (expected surplus of EUR4.75 bln; last surplus of EUR5.056 bln).
• Today's Data:
  • The Empire State Manufacturing survey hit 7.1 in February (Briefing.com consensus 7.1), down from 7.7 in January.
  • The NAHB Housing Market Index fell to 36 in February (Briefing.com consensus 38) from 37 in January.
• Commodities:
  • WTI crude: -0.8% to $62.33/bbl
  • Gold: -2.7% to $4906.10/ozt
  • Copper: -2.8% to $5.64/lb
• Currencies:
  • EUR/USD: UNCH at 1.1850
  • GBP/USD: -0.5% to 1.3563
  • USD/CNH: +0.1% to 6.8848
  • USD/JPY: -0.1% to 153.24
• The Day Ahead:
  • 7:00 ET: Weekly MBA Mortgage Index (prior -0.3%)
  • 8:30 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%)
  • 9:15 ET: January Industrial Production (Briefing.com consensus 0.4%; prior 0.4%) and Capacity Utilization (Briefing.com consensus 76.5%; prior 76.3%)
  • 14:00 ET: January FOMC Minutes
  • 16:00 ET: December Net Long-Term TIC Flows (prior $220.2 bln)
• Treasury Auctions:
  • 13:00 ET: $16 bln 20-yr Treasury bond auction results