Bond Market Update

Calm Demeanor Persists

• U.S. Treasuries had another steady showing on Wednesday, keeping yields near levels seen during Tuesday's sideways session. The trading day started with some slight relative weakness in longer tenors after the U.S. Treasury's quarterly refunding statement confirmed that this month's sales of 10-, 20-, and 30-yr notes and bonds will be upsized by $3 bln apiece. However, the lower start gave way to a bounce that took place alongside another weak showing from tech stocks, which weighed on the S&P 500. Shorter tenors were at the forefront of the bounce while the long bond never made it back into the green, but all the movement was confined to a narrow range. Economic data released today included a solid ISM Services PMI for January (53.8%; Briefing.com consensus 53.7%), which followed similarly strong ISM Services reports from other major economies. Crude oil rallied back above $65.00/bbl amid dimming hopes for a diplomatic solution to the ongoing conflict with Iran while the U.S. Dollar Index rose 0.2% to 97.64.
• Yield Check:
  • 2-yr: -1 bp to 3.56%
  • 3-yr: -1 bp to 3.64%
  • 5-yr: UNCH at 3.83%
  • 10-yr: UNCH at 4.28%
  • 30-yr: +1 bp to 4.92%

• News:
  • The Employment Situation report for January will be released on Wednesday, February 11
  • India's trade minister said that the deal with the U.S., which will remove tariffs on most industrial goods imports from the U.S., is nearly finalized.
  • Vietnam's trade minister said that his country is willing to increase purchases of machinery and high-tech products from the U.S.
  • The Times Shadow Committee unanimously recommended that the Bank of England keep its bank rate at 3.75% tomorrow.
  • The European Central Bank is expected to leave its policy unchanged tomorrow.
  • China's January RatingDog Services PMI hit 52.3 (expected 52.0; last 52.0).
  • Japan's January Services PMI hit 53.7 (expected 53.4; last 51.6).
  • Hong Kong's January Manufacturing PMI hit 52.3 (last 51.9).
  • India's January Services PMI hit 58.5 (expected 59.3; last 58.0).
  • Australia's January Services PMI hit 56.3 (expected 56.0; last 51.1).
  • New Zealand's Q4 Employment increased by 0.5% qtr/qtr (expected 0.3%; last 0.0%), Q4 Unemployment Rate rose to 5.4% from 5.3% (expected 5.3%), Q4 Participation Rate rose to 70.5% from 70.3% (expected 70.3%). Q4 Labor Cost Index was up 0.4% qtr/qtr (expected 0.5%; last 0.5%), rising 2.0% yr/yr, as expected (last 2.1%).
  • Eurozone's January Services PMI hit 51.6 (expected 51.9; last 52.4). Flash January CPI was down 0.5% m/m (last 0.2%) but up 1.7% yr/yr, as expected (last 2.3%). January Core CPI was up 2.2% yr/yr (expected 2.3%; last 2.3%).
  • Germany's January Services PMI hit 52.4 (expected 53.3; last 52.7).
  • U.K.'s January Services PMI hit 54.0 (expected 54.3; last 51.4).
  • France's January Services PMI hit 48.4 (expected 47.9; last 50.1).
  • Italy's January Services PMI hit 52.9 (expected 51.3; last 51.5). Flash January CPI was up 0.4% m/m, as expected (last 0.2%), rising 1.0% yr/yr, as expected (last 1.2%).
  • Spain's January Services PMI hit 53.5 (expected 56.6; last 57.1).
• Today's Data:
  • The ISM Services PMI checked in at 53.8% in January (Briefing.com consensus: 53.7%), unchanged from a downwardly revised 53.8% (from 54.4%) in December. The dividing line between expansion and contraction is 50.0%, so the January reading reflects services sector activity growing at the same pace as the prior month.
    • The key takeaway from the report is that activity in the services sector grew at a steady pace in January at the same time prices paid for materials and services increased.
  • The ADP Employment Change report pointed to the addition of 22,000 nonfarm payrolls in January (Briefing.com consensus 43,000) while the December increase was revised down to 37,000 from 41,000.
  • The weekly MBA Mortgage Index fell 8.9% after falling 8.5% a week ago. The Purchase Index fell 14.4% while the Refinance Index was down 4.7%.
  • Weekly crude oil inventories decreased by 3.46 mln barrels after decreasing by 2.30 mln barrels a week ago.
• Commodities:
  • WTI crude: +3.1% to $65.13/bbl
  • Gold: +0.3% to $4948.20/ozt
  • Copper: -3.9% to $5.85/lb
• Currencies:
  • EUR/USD: -0.1% to 1.1808
  • GBP/USD: -0.2% to 1.3663
  • USD/CNH: +0.1% to 6.9416
  • USD/JPY: +0.7% to 156.85
• The Day Ahead:
  • 8:30 ET: Weekly Initial Claims (Briefing.com consensus 210,000; prior 209,000) and Continuing Claims (prior 1.827 mln)
  • 10:00 ET: December Job Openings (prior 7.146 mln)
  • 10:30 ET: Weekly natural gas inventories (prior -242 bcf)