Bond Market Update

Long End Fails to Sustain Early Strength

• U.S. Treasuries of most tenors tried to bounce on Friday, but the early uptick eventually gave way to continued selling that left the complex deep in the red for the week. The trading day started with gains in most tenors and relative weakness in the long bond after a night that saw a pause in the crude oil rally. There were continued reassurances from Washington that the conflict with Iran will end soon, but the market has remained on edge nonetheless. Investors received a big batch of data today, which was a bit of a mixed bag. There was a downward revision to Q4 GDP (to 0.7% from 1.4%; Briefing.com consensus 1.4%), a January Personal Income/Outlays report, which showed an uptick in the core PCE Price Index (to 3.1% from 3.0%), a Durable Orders report that featured a solid increase in business investment in January (+0.9%), and an uptick in job openings (6.946 million) from a level not seen since December 2020. Treasuries navigated a narrow sideways range during the first half of the session with the short end maintaining its lead, but the entire complex faced renewed selling in the early afternoon that sent 10s and 30s back into the red while shorter tenors held onto a portion of their gains. Crude oil approached $100/bbl while the U.S. Dollar Index rose 0.6% to 100.36, reaching a fresh high for the year.
• Yield Check:
  • 2-yr: -3 bps to 3.73% (+17 bps this week)
  • 3-yr: -3 bps to 3.75% (+17 bps this week)
  • 5-yr: -1 bp to 3.87% (+15 bps this week)
  • 10-yr: +2 bps to 4.29% (+16 bps this week)
  • 30-yr: +2 bps to 4.91% (+15 bps this week)

• News:
  • U.S. Trade Representative Greer will join Treasury Secretary Bessent for next week's meetings with China's Vice Premier He.
  • India is seeing urea from China while South Korea will limit exports of naphtha products.
  • China's February New Loans reached CNY900.0 bln (last CNY4.71 trln) and total social financing reached CNY2.38 trln (last CNY7.22 trln)
  • Hong Kong's Q4 Industrial Production was up 5.7% yr/yr (last 5.4%).
  • New Zealand's February Business PMI hit 55.0 (expected 55.1). January External Migration & Visitors rose 4.1% yr/yr (last 1.6%).
  • Eurozone's January Industrial Production was down 1.5% m/m (expected 0.6%; last -0.6%), falling 1.2% yr/yr (expected 1.4%; last 2.2%).
  • Germany's February WPI was up 0.6% m/m (expected 0.3%; last 0.9%), rising 1.2% yr/yr (last 1.2%).
  • U.K.'s January GDP was unchanged m/m (expected 0.2%; last 0.1%), growing 0.8% yr/yr (expected 0.9%; last 0.7%).
  • France's February CPI was up 0.6% m/m (expected 0.7%; last -0.4%), rising 1.1% yr/yr, as expected (last 0.4%).
  • Italy's January Industrial Production was down 0.6% m/m (expected 0.4%; last -0.5%), falling 0.6% yr/yr (expected 0.8%; last 2.7%).
  • Spain's February CPI was up 0.4% m/m, as expected (last -0.4%), rising 2.3% yr/yr, as expected (last 2.3%). February Core CPI was up 2.7% yr/yr, as expected (last 2.6%).
• Today's Data:
  • Personal Income increased 0.4% month-over-month in January (Briefing.com consensus 0.4%) after rising 0.3% in December. Personal spending was also up 0.4% month-over-month (Briefing.com consensus 0.2%) following a 0.4% increase in December. The PCE Price Index rose 0.3% month-over-month (Briefing.com consensus 0.3%), while the core PCE Price Index, which excludes food and energy, rose 0.4% month-over-month (Briefing.com consensus 0.4%). On a year-over-year basis, the PCE Price Index increased 2.8% versus 2.9% in December, and the core PCE Price Index increased 3.1%, versus 3.0% in December.
    • The key takeaway from the report is that the Fed's preferred inflation measure, the core PCE Price Index, edged up in January, which presents a headwind to rate cut expectations.
  • Q4 GDP was revised down to 0.7% (Briefing.com consensus 1.4%) from the advance estimate of 1.4%. The GDP Price Deflator was revised to 3.8% from 3.6% in the advance estimate.
    • The key takeaway from the report is that growth decelerated notably in Q4 while the Price Deflator was revised higher, which is a disappointing combination.
  • Durable goods orders were flat month-over-month in January (Briefing.com consensus 0.7%). Excluding transportation, durable goods orders rose 0.4% month-over-month (Briefing.com consensus 0.5%) after increasing a revised 1.3% (from 0.9%) in December.
    • The key takeaway from the report is that the flat headline reading masked a solid 0.9% increase in nondefense capital goods orders, which is a proxy for business investment.
  • The preliminary reading of the University of Michigan Consumer Sentiment for March fell to 55.5 (Briefing.com consensus 55.7) from the final reading of 56.6 for February. In the same period a year ago, the index stood at 57.0.
    • The key takeaway from the report is that roughly half of the interviews were conducted before military action in Iran, which spurred a rally in energy prices. Therefore, the Consumer Sentiment Index is likely to be revised lower in the final reading for March.
  • Job openings increased to 6.946 million in January from a revised 6.550 million (from 6.542 million) in December.
• Commodities:
  • WTI crude: +3.0% to $98.56/bbl
  • Gold: -1.3% to $5061.70/ozt
  • Copper: -1.9% to $5.76/lb
• Currencies:
  • EUR/USD: -0.7% to 1.1433
  • GBP/USD: -0.8% to 1.3240
  • USD/CNH: +0.4% to 6.9060
  • USD/JPY: +0.2% to 159.63
• The Week Ahead:
  • Monday: March Empire State Manufacturing (Briefing.com consensus 5.0; prior 7.1) at 8:30 ET; February Industrial Production (Briefing.com consensus 0.4%; prior 0.7%) and Capacity Utilization (Briefing.com consensus 76.0%; prior 76.2%) at 9:15 ET
  • Tuesday: March NAHB Housing Market Index (Briefing.com consensus 35; prior 36) at 9:00 ET; February Pending Home Sales (Briefing.com consensus -0.8%; prior -0.8%) at 10:00 ET; and 20-yr bond auction results at 13:00 ET
  • Wednesday: Weekly MBA Mortgage Index (prior 3.2%), at 7:00 ET; February PPI (Briefing.com consensus 0.3%; prior 0.5%) and Core PPI (Briefing.com consensus 0.4%; prior 0.8%) at 8:30 ET; January Factory Orders (prior -0.7%); weekly crude oil inventories (prior +3.82 mln) at 10:30 ET; March FOMC Rate Decision (Briefing.com consensus 3.50-3.75%; prior 3.50-3.75%) at 14:00 ET; and January Net Long Term TIC Flows (prior $28.0 bln) at 16:00 ET
  • Thursday: Weekly Initial Claims (Briefing.com consensus 215,000; prior 213,000), Continuing Claims (prior 1.850 mln), and March Philadelphia Fed survey (Briefing.com consensus 4.7; prior 16.3) at 8:30 ET; January New Home Sales (Briefing.com consensus 719,000; prior 745,000) and January Wholesale Inventories (Briefing.com consensus 0.2%; prior 0.2%) at 10:00 ET; and weekly natural gas inventories (prior -38 bcf) at 10:30 ET
  • Friday: Nothing of note