Bond Market Update

Opening Losses Recovered

• U.S. Treasuries finished Thursday on a flat note after overcoming some early softness that briefly lifted yields back to their highs from Friday. The trading day started with modest losses across the board after another night of reduced activity due to Lunar New Year celebrations in Asia. South Korea's Kospi (+3.1%) reopened, promptly soaring to a fresh record while markets in China and Hong King were closed. The early weakness in Treasuries coincided with some light overnight pressure on other sovereign debt with relative weakness in Australia after the release of solid January employment figures. However, the lower start was bought quickly, as the market bounced after today's first batch of data showed a larger-than-expected drop in weekly initial claims (to 206,000 from 229,000; Briefing.com consensus 225,000), a widening in the trade balance for December (-$70.3 bln; Briefing.com consensus -$55.8 bln; prior -$53.0 bln), and an improvement in the Philadelphia Fed survey (16.3; Briefing.com consensus 8.5; prior 12.6) for January. The bounce continued into the afternoon with 10s and 30s finishing just above their unchanged levels while shorter tenors recorded slight losses ahead of tomorrow's release of advance reading of Q4 GDP (Briefing.com consensus 3.0%; prior 4.3%). Crude oil settled at its highest level since early August while the U.S. Dollar Index rose 0.2% to 97.89.
• Yield Check:
  • 2-yr: +1 bp to 3.47%
  • 3-yr: +1 bp to 3.50%
  • 5-yr: UNCH at 3.65%
  • 10-yr: UNCH at 4.08%
  • 30-yr: UNCH at 4.70%

• News:
  • The Atlanta Fed's GDPNow forecast for Q4 GDP was lowered to 3.0% in the final estimate from 3.6%.
  • Fed Governor Miran is no longer in favor of aggressive rate cuts, according to The Wall Street Journal.
  • The European Central Bank's latest Economic Bulletin noted that the central bank needs to ensure that inflation stabilizes at the 2.0% target in the medium term.
  • European Central Bank President Lagarde told other ECB policymakers that she remains focused on her job amid recent reports that she will leave her post before the end of her term.
  • Japan's December Core Machinery Orders jumped 19.1% m/m (expected 5.1%; last -11.0%), rising 16.8% yr/yr (expected 3.9%; last -6.4%).
  • South Korea's January trade surplus reached $8.72 bln (expected surplus of $8.74 bln; last surplus of $12.17 bln) as imports grew 11.6% yr/yr (expected 11.7%; last 4.6%) and exports rose 33.8% yr/yr (expected 33.9%; last 13.3%).
  • Australia's January Employment increased by 17,800 (expected 20,000; last 68,500) and full employment increased by 50,500 (last 56,900). January Unemployment Rate remained at 4.1% (expected 4.2%) and Participation Rate fell to 66.7% from 68.5% (expected 66.8%).
  • Eurozone's December Current Account surplus reached EUR14.6 bln (expected surplus of EUR9.8 bln; last surplus of EUR8.9 bln). December Construction Output was up 0.88% m/m (last -1.54%).
  • U.K.'s February CBI Industrial Trends Orders rose to -28 from -30, as expected.
  • Spain's December trade deficit reached EUR5.57 bln (last deficit of EUR5.68 bln).
  • Swiss January trade surplus reached CHF3.818 bln (last surplus of CHF934 mln). Q4 Industrial Production was down 0.7% yr/yr (last 2.0%).
• Today's Data:
  • Initial claims for the week ending February 14 decreased by 23,000 to 206,000 (Briefing.com consensus: 225,000). There has been a suggestion that seasonal factors are the basis for the low reading, but even if that isn't the case, the level of initial jobless claims is still quite low. Continuing jobless claims for the week ending February 7 increased by 17,000 to 1.869 million.
    • The key takeaway from the report is its confirmatory signal that the labor market is still operating in a low-firing environment.
  • The trade deficit widened to $70.3 billion in December (Briefing.com consensus: -$55.8 billion) from an upwardly revised $53.0 billion deficit (from -$56.8 billion) in November. The wider gap was the result of exports being $5.0 billion less than November exports and imports being $12.3 billion more than November imports.
    • The key takeaway from the report is that the wider deficit will detract from Q4 GDP growth estimates.
  • The Philadelphia Fed Index increased to 16.3 in February (Briefing.com consensus: 8.5) from 12.6 in January.
    • The dividing line between expansion and contraction for this series is 0.0, so the February reading suggests there was an accelerating pace of expansion for the manufacturing sector in the Philadelphia Fed region. The mixed element in the report is that it featured a deceleration in new orders and shipments and a contraction in the index for the number of employees.
  • Pending Home Sales fell 0.8% in January (Briefing.com consensus 1.4%) after falling a revised 7.4% (from -9.3%) in December.
  • The Leading Index was down 0.2% in December after falling 0.3% in November.
  • The advance International goods trade deficit widened to $98.5 bln in December from $82.8 bln in November.
  • Advance Retail Inventories were unchanged in December after falling 0.5% in November.
  • Advance Wholesale Inventories rose 0.2% in December after increasing 0.2% in November.
  • Weekly natural gas inventories decreased by 144 bcf after decreasing by 249 bcf a week ago. 
  • Weekly crude oil inventories decreased by 9.01 mln barrels after increasing by 8.53 mln barrels a week ago.
• Commodities:
  • WTI crude: +2.2% to $66.42/bbl
  • Gold: -0.3% to $4997.00/ozt
  • Copper: -1.0% to $5.74/lb
• Currencies:
  • EUR/USD: -0.2% to 1.1764
  • GBP/USD: -0.3% to 1.3454
  • USD/CNH: +0.1% to 6.8981
  • USD/JPY: +0.2% to 155.08
• The Day Ahead:
  • 8:30 ET: 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%)
  • 9:45 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)
  • 10:00 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)