Bond Market Update

February Charge Extended

• U.S. Treasuries finished February with strong gains across the curve that sent yields to their lowest settlement levels of the year. The belly outperformed on Friday, staying true to its February trend. Treasuries followed yesterday's strong showing with a firmly higher start as investors continued pondering future implications of AI development after Block (XYZ) fired nearly half of its staff and CEO Dorsey predicted that most companies will follow suit in the future. The higher start met some brief resistance after the PPI report for January was hotter than expected at the headline (0.5%; Briefing.com consensus 0.3%) and core (0.8%; Briefing.com consensus 0.3%) levels, but the market eventually rallied past today's starting levels with all tenors settling at fresh highs for 2026 and the 2-yr yield ending at its lowest level since August 2022. Crude oil climbed to a fresh 2026 high just north of $67.00/bbl, amid ongoing uncertainty surrounding Iran, while the U.S. Dollar Index (97.60) fell 0.2% today and for the week, ending the month little changed.
• Yield Check:
  • 2-yr: -7 bps to 3.38% (-10 bps this week; -15 bps in February)
  • 3-yr: -8 bps to 3.38% (-12 bps this week; -22 bps in February)
  • 5-yr: -7 bps to 3.51% (-14 bps this week; -29 bps in February)
  • 10-yr: -6 bps to 3.96% (-13 bps this week; -28 bps in February)
  • 30-yr: -4 bps to 4.63% (-10 bps this week; -24 bps in February)

• News:
  • The People's Bank of China will scrap the 20% reserve requirement ratio for forward foreign exchange sales on Monday.
  • China's National People's Congress will start on Thursday with press reports suggesting that the party will seek to promote social welfare and sustainability rather than growth at all costs.
  • Japan's Economy Minister Kiuchi said that signs of inflation are slowing and that real wages should turn positive soon.
  • U.K.'s Labour party came in third place in a regional by-election, serving as a reminder of weak support for the ruling party and Prime Minister Starmer.
  • Japan's February Tokyo CPI was up 1.6% yr/yr (last 1.5%) and Tokyo Core CPI was up 1.8% yr/yr (expected 1.7%; last 2.0%). January Industrial Production rose 2.2% m/m (expected 5.5%; last -0.1%), January Retail Sales rose 1.8% yr/yr (expected 0.1%: last -0.9%), January Construction Orders rose 5.7% yr/yr (last 20.2%) and January Housing Starts were down 0.4% yr/yr (expected -1.9%; last -1.3%).
  • Hong Kong's January trade deficit reached HKD14.1 bln (last deficit of HKD63.3 bln) as imports grew 38.1% m/m (last 30.6%) and exports rose 33.8% m/m (last 26.1%).
  • Australia's January Private Sector Credit was up 0.5% m/m (expected 0.7%; last 0.8%) and Housing Credit was up 0.6% m/m (last 0.7%).
  • India's Q3 GDP expanded 7.8% yr/yr (expected 7.2%; last 8.2%).
  • Germany's flash February CPI was up 0.2% m/m (expected 0.5%; last 0.1%), rising 1.9% yr/yr (expected 2.0%; last 2.1%); January Import Prices Index was up 1.1% m/m (expected 0.6%; last -0.1%) but down 2.3% yr/yr (last -2.3%).
  • France's Q4 GDP expanded 0.2% qtr/qtr, as expected (last 0.2%), growing 1.1% yr/yr, as expected (last 0.9%). Q4 Nonfarm Payrolls decreased 0.1% qtr/qtr, as expected (last -0.1%). January Consumer Spending was up 0.5% m/m (expected 0.4%; last -0.5%). February CPI was up 0.7% m/m (expected 0.5%; last -0.3%), rising 1.0% yr/yr (expected 0.8%; last 0.3%). February PPI was up 0.5% m/m (last 0.3%). January Jobseeker total decreased to 3.09 mln from 3.117 mln.
  • Spain's February CPI was up 0.4% m/m (last -0.4%), rising 2.3% yr/yr (expected 2.2%; last 2.3%). December Current Account surplus reached EUR1.80 bln (last surplus of EUR210 mln) 
  • Swiss Q4 GDP expanded 0.1% qtr/qtr (expected 0.2%; last -0.4%), growing 0.7% yr/yr (last 0.6%). February KOF Leading Indicators rose to 104.2 from 103.3 (expected 103.0).
• Today's Data:
  • The Producer Price Index for final demand increased 0.5% month-over-month in January (Briefing.com consensus: 0.3%) following a downwardly revised 0.4% increase (from 0.5%) in December. The Producer Price Index for final demand, excluding food and energy, surged 0.8% month-over-month (Briefing.com consensus: 0.3%) following a 0.6% increase in December. The Producer Price Index for final demand was up 2.9% year-over-year, versus 3.0% in December, but the Producer Price Index for final demand, excluding food and energy, was up 3.6%, versus 3.3% in December.
    • The key takeaway from the report was rooted in the worrying core-PPI component, as that will foment concerns about pass-through to consumer prices that will likely keep the Fed leery about cutting rates soon.
  • The Department of Commerce released construction spending data for November and December as it continues to play catch-up from the government shutdown. For November, construction spending declined 0.2% month-over-month following a 0.1% decline in October. For December, construction spending jumped 0.3% month-over-month.
    • The key takeaway from the report is that residential construction spending accounted for the entirety of the monthly increase in total construction spending.
  • The Chicago PMI hit 57.7 in February (Briefing.com consensus 52.5), up from 54.0 in January.
• Commodities:
  • WTI crude: +2.8% to $67.06/bbl
  • Gold: +1.0% to $5248.20/ozt
  • Copper: +0.8% to $6.06/lb
• Currencies:
  • EUR/USD: +0.2% to 1.1823
  • GBP/USD: UNCH at 1.3484
  • USD/CNH: +0.3% to 6.8599
  • USD/JPY: -0.1% to 155.96
• The Week Ahead:
  • Monday: Final February S&P Global U.S. Manufacturing PMI (prior 51.2) at 9:45 ET and February ISM Manufacturing Index (prior 52.6%) at 10:00 ET
  • Tuesday: Nothing of note
  • Wednesday: Weekly MBA Mortgage Index (prior 0.4%) at 7:00 ET; February ADP Employment Change (Briefing.com consensus 42,000; prior 22,000) at 8:15 ET; final February S&P Global U.S. Services PMI (prior 52.3) at 9:45 ET; February ISM Non-Manufacturing Index (Briefing.com consensus 53.9%; prior 53.8%) at 10:00 ET; and weekly crude oil inventories (prior +15.989 mln) at 10:30 ET
  • Thursday: Preliminary Q4 Productivity (Briefing.com consensus 4.0%; prior 4.9%), preliminary Q4 Unit Labor Costs (Briefing.com consensus 0.2%; prior -1.9%), weekly Initial Claims (Briefing.com consensus 216,000; prior 212,000), Continuing Claims (prior 1.833 mln), January Import Prices (prior 0.1%), Import Prices ex-oil (prior 0.4%), Export Prices (prior 0.3%), and Export Prices ex-agriculture (prior 0.3%) at 8:30 ET; and weekly natural gas inventories (prior -52 bcf) at 10:30 ET
  • Friday: February Nonfarm Payrolls (Briefing.com consensus 60,000; prior 130,000), Nonfarm Private Payrolls (Briefing.com consensus 78,000; prior 172,000), Unemployment Rate (Briefing.com consensus 4.3%; prior 4.3%), Average Hourly Earnings (Briefing.com consensus 0.3%; prior 0.4%), Average Workweek (Briefing.com consensus 34.3; prior 34.3), January Retail Sales (Briefing.com consensus -0.1%; prior 0.0%), and Retail Sales ex-auto (Briefing.com consensus 0.2%; prior 0.0%) at 8:30 ET; January Business Inventories (prior NA) at 10:00 ET; and January Consumer Credit (Briefing.com consensus $9.9 bln; prior $24.0 bln) at 15:00 ET