Bond Market Update

Short End Leads Continued Selling

• U.S. Treasuries retreated again on Thursday with shorter tenors leading the slide amid ongoing focus on the rising price of oil and the broader implications for the global economy. The trading day started with losses across the curve, but the 10-yr note and shorter tenors began adding to their losses about an hour after the open while the long bond resisted, remaining near its starting level throughout the day. The underperformance in shorter tenors was driven by oil's push toward $95/bbl and ongoing worries that the Iran conflict could drag on for an extended time. The sharp rise in energy costs masked today's solid batch of economic data, which showed a narrowing in the Trade Deficit for January (to $54.5 bln from $72.9 bln; Briefing.com consensus -$67.9 bln), a solid increase in January Housing Starts (1.487 mln; Briefing.com consensus 1.340 mln), and a dip in weekly Initial Claims (to 213,000 from 214,000; Briefing.com consensus 215,000). The 10-yr note and shorter tenors finished the day on their lows while the long bond received some help from a strong $22 bln 30-yr bond reopening, which made for a good finish to this week's mediocre auction slate. Crude oil settled just shy of $95/bbl while the U.S. Dollar Index rose 0.5% to 99.67.
• Yield Check:
  • 2-yr: +13 bps to 3.76%
  • 3-yr: +13 bps to 3.78%
  • 5-yr: +10 bps to 3.88%
  • 10-yr: +7 bps to 4.27%
  • 30-yr: +3 bps to 4.89%

• News:
  • U.S. Customs and Border Protection office is preparing a four-party system for tariff refunds, according to CNBC.
  • The Trump administration will temporarily waive the Jones Act, which requires American ships to transport goods between U.S. ports.
  • Japan will release 80 million barrels from state and private reserves and Prime Minister Takaichi said that there is no need for an extra budget to offset higher gasoline prices.
  • Japan's Q1 BSI Large Manufacturing Conditions fell to 3.8 from 4.7 (expected 5.3).
  • Australia's May MI Inflation Expectations rose to 5.2% from 5.0%.
  • New Zealand's Q4 Manufacturing Sales Volume was down 0.5% qtr/qtr (last 1.1%).
  • India's February CPI was up 3.21% yr/yr (expected 3.10%; last 2.75%).
  • Italy's Q4 Unemployment Rate fell to 5.6% from 6.1% (expected 6.1%).
• Today's Data:
  • Total housing starts increased 7.2% month-over-month in January to a seasonally adjusted annual rate of 1.487 million units (Briefing.com consensus 1.340 million), with single-unit starts down 2.8%. Building permits decreased 5.4% to a seasonally adjusted annual rate of 1.376 million (Briefing.com consensus 1.392 million), with single-unit permits down 0.9%.
    • The key takeaway from the report is that it beat expectations thanks to strong growth in multi-unit starts while single-unit housing starts were down 2.8% month-over-month.
  • The trade deficit narrowed to $54.5 billion in January (Briefing.com consensus -$67.9 billion) from a revised $72.9 billion deficit (from -$70.3 billion) in December. The narrower gap was the result of exports being $15.8 billion more than December exports and imports being $2.6 billion less than December imports.
    • The key takeaway from the report is that the monthly trade deficit returned to the $50 billion range, which has been a familiar zone since last year's implementation of tariffs.
  • Initial jobless claims for the week ending March 7 decreased by 1,000 to 213,000 (Briefing.com consensus 215,000). Continuing jobless claims for the week ending February 28 decreased by 21,000 to 1.850 million.
    • The key takeaway from the report is that claims remain just above the 200,000 mark, reflecting a low-firing environment.
  • Weekly natural gas inventories decreased by 38 bcf after decreasing by 132 bcf a week ago.
  • $22 bln 30-year Treasury bond reopening results (prior 12-auction average):
    • High yield: 4.871% (4.769%).
    • Bid-to-cover: 2.45 (2.39).
    • Indirect bid: 63.4% (63.8%).
    • Direct bid: 27.2% (24.0%).
• Commodities:
  • WTI crude: +10.2% to $95.72/bbl
  • Gold: -1.0% to $5126.00/ozt
  • Copper: -0.3% to $5.87/lb
• Currencies:
  • EUR/USD: -0.5% to 1.1513
  • GBP/USD: -0.5% to 1.3343
  • USD/CNH: +0.1% to 6.8835
  • USD/JPY: +0.4% to 159.41
• The Day Ahead:
  • 8:30 ET: January Personal Income (Briefing.com consensus 0.4%; prior 0.3%), Personal Spending (Briefing.com consensus 0.2%; prior 0.4%), PCE Prices (Briefing.com consensus 0.3%; prior 0.4%), Core PCE Prices (Briefing.com consensus 0.4%; prior 0.4%), Q4 GDP -- second estimate (Briefing.com consensus 1.4%; prior 1.4%), Q4 GDP Deflator -- second estimate (Briefing.com consensus 3.7%; prior 3.6%), January Durable Orders (Briefing.com consensus 0.7%; prior -1.4%), and Durable Orders -ex transportation (Briefing.com consensus 0.5%; prior 0.9%)
  • 10:00 ET: January job openings (prior 6.542 mln) and preliminary March University of Michigan Consumer Sentiment (Briefing.com consensus 55.7; prior 56.6)