Bond Market Update

Belly Leads Monday Charge

• U.S. Treasuries began the week on a firmly higher note, sending the 5-yr yield toward its low from 2025 (3.530%) amid an uptick in trade tensions and ongoing weakness in asset managers. The buying left the 5-yr yield just five basis points above its low from last year as investors sought some protection from persistent volatility in technology and financials. Buying interest picked up significantly after a modestly higher start amid a new wrinkle in transatlantic trade relations. President Trump raised the global tariff rate to 15% from 10% and warned this morning that he would impose additional tariffs on countries that attempt to revisit recent trade agreements with the U.S. The threat was made just hours after it was reported that the EU is pausing the approval of the trade deal, pending further review. Treasuries extended their early gains alongside a weak showing from the S&P 500 financials sector, where asset managers were pressured amid ongoing concerns about exposure to data center and software debt. These worries have become widely reported in recent days, but they have not spilled over to other high yield debt, evidenced by limited signs of stress in broader high yield baskets like iShares iBoxx High Yield ETF (HYG) and SPDR High Yield Bond ETF (JNK). Today's rally produced highs shortly after yields on 5s and 10s slipped past their lows from last week, settling at levels last seen in late November. Crude oil tagged a fresh high for the year (67.28) before giving back its gain while the U.S. Dollar Index slipped 0.1% to 97.70.
• Yield Check:
  • 2-yr: -4 bps to 3.44%
  • 3-yr: -5 bps to 3.45%
  • 5-yr: -7 bps to 3.58%
  • 10-yr: -6 bps to 4.03%
  • 30-yr: -3 bps to 4.70%

• News:
  • Former Bank of Japan policymaker Sakurai said that a March rate hike is possible if the yen faces renewed weakness.
  • U.S. Trade Representative Greer said that the effective tariff on imports from China has decreased to 40% from 45% after Friday's opinion from the Supreme Court.
  • South Korea's exports through the first 20 days of February were up 23.5% yr/yr with chip exports jumping 16.4%.
  • Germany's auto association noted that Friday's tariff ruling in the U.S. does not apply to main tariffs affecting the auto industry.
  • German Chancellor Merz was reelected as CDU leader by a wide margin.
  • New Zealand's Q4 Retail Sales were up 0.9% qtr/qtr (expected 0.6%; last 1.9%) and Core Retail Sales were up 1.5% qtr/qtr (expected 0.4%; last 1.2%). January Credit Card Spending rose 1.0% yr/yr (last -0.2%).
  • Singapore's January CPI was down 0.5% m/m (last 0.3%) but up 1.4% yr/yr (last 1.2%). January Core CPI was up 1.0% yr/yr (last 1.2%).
  • Germany's February ifo Business Climate Index rose to 88.6 from 87.6 (expected 88.4). February Current Assessment rose to 86.7 from 85.7 (expected 86.1) and Business Expectations rose to 90.5 from 89.6, as expected.
  • Italy's January CPI was up 0.4% m/m, as expected (last 0.2%), rising 1.0% yr/yr, as expected (last 1.2%).
  • Swiss January PPI was down 0.2% m/m (expected 0.1%; last -0.2%), falling 2.2% yr/yr (last -1.8%).
• Today's Data:
  • Factory orders declined 0.7% month-over-month in December (Briefing.com consensus: 0.9%) following a 2.7% increase in November. Excluding transportation, factory orders increased 0.4% after increasing 0.1% in November. Shipments of manufactured goods rose 0.5% after sliding 0.2% in November.
    • The key takeaway from the report is that the weakness was concentrated in the transportation industry; otherwise, it was a decent month of order activity for durable goods.
• Commodities:
  • WTI crude: -0.3% to $66.30/bbl
  • Gold: +2.9% to $5226.20/ozt
  • Copper: -1.0% to $5.78/lb
• Currencies:
  • EUR/USD: +0.1% to 1.1791
  • GBP/USD: +0.1% to 1.3490
  • USD/CNH: -0.1% to 6.8896
  • USD/JPY: -0.2% to 154.62
• The Day Ahead:
  • 9:00 ET: December FHFA Housing Price Index (Briefing.com consensus 0.4%; prior 0.6%) and December S&P Case-Shiller Home Price Index (Briefing.com consensus 1.4%; prior 1.4%)
  • 10:00 ET: February Consumer Confidence (Briefing.com consensus 86.0; prior 84.5) and December Wholesale Inventories (Briefing.com consensus 0.2%; prior 0.2%)
• Treasury Auctions:
  • 13:00 ET: $69 bln 2-yr Treasury note auction results