Bond Market Update

Three Strikes and Treasuries Are Out

• U.S. Treasuries had a tough day, and yields rose across the curve. The weakness was grounded in three driving factors: 1) a hotter-than-expected Producer Price Index for February, 2) volatile movement in oil prices (WTI moved above $98.00/bbl before settling at $95.42/bbl), and 3) an acknowledgment by Fed Chair Powell that higher oil prices will push up inflation in the near term, which left participants with a foreboding sense that the next rate cut will happen later rather than sooner. The latter didn't sit well either with equities, which dropped to session lows during and after Fed Chair Powell's press conference, which included the acknowledgment from Mr. Powell that he has not made a decision yet about serving out the remainder of his term as a Fed Governor once his chairmanship is over. The beneficiary of the shifting rate expectations was the dollar. The U.S. Dollar Index increased 0.6% to 100.12.
• Yield Check:
  • 2-yr: +8 bps to 3.75%
  • 3-yr: +7 bps to 3.75%
  • 5-yr: +7 bps to 3.86%
  • 10-yr: +6 bps to 4.26%
  • 30-yr: +3 bps to 4.88%

• News:
  • FOMC votes 11-1 to leave target range for fed funds rate unchanged at 3.50-3.75% (Fed Governor Miran preferred a 25 bps cut); SEP shows bump in median estimate for change in real GDP to 2.4% from 2.3% and PCE inflation to 2.7% from 2.4%
  • Fed Chair Powell says he has no intention of leaving the board until the investigation is well and truly over with transparency and finality. Has not made a decision yet on whether he will continue to serve as Governor until his term ends and the investigation is over.
  • Fed Chair Powell will serve as chair pro tem if his successor is not confirmed by the end of his term as Fed chair
  • U.S. set to temporarily waive summer gasoline rules to ease prices amid Iran conflict, according to Reuters
  • White House Press Secretary Karoline Leavitt confirms that President Trump issued a 60-day waiver for the Jones Act
  • Gulf states want the U.S. to cripple or dismantle the Iranian regime before the war ends. WSJ
  • Three members of the FOMC could dissent at today's Fed meeting. WSJ
  • Japanese Prime Minister Sanae Takaichi will meet with President Trump tomorrow to discuss Iran. FT
  • Iranian attacks on Gulf states continue. President Trump told reporters the Iran war could end "in the near future." Bloomberg
  • The Trump administration plans to ease sanctions on Venezuela's oil sector. Bloomberg
  • Iraq has resumed Kirkuk crude exports via Ceyhan. Reuters
  • Policy announcements from the Bank of England, ECB, and Swiss National Bank on Thursday
  • Banks will soon sell $18 billion in debt related to EA (EA) deal. FT
  • South Korea said it will be implementing capital market reforms to strengthen market fundamentals
  • Eurozone February CPI 0.6% m/m (expected 0.7%; prior -0.6%) and 1.9% yr/yr (expected 1.9%; prior 1.7%); core CPI 0.8% m/m (expected 0.8%; prior -1.1%) and 2.4% yr/yr (expected 2.4%; prior 2.2%)
  • Japan's February exports 4.2% yr/yr (expected 1.6%; prior 16.8%) and imports 10.2% yr/yr (expected 11.5%; prior -2.6%)
• Today's Data:
  • The Producer Price Index for final demand increased 0.7% month-over-month (Briefing.com consensus: 0.3%) following a 0.5% increase in January. The Producer Price Index for final demand, less foods and energy, jumped 0.5% month-over-month (Briefing.com consensus: 0.4%) following a 0.8% increase in January. On a year-over-year basis, the Producer Price Index for final demand was up 3.4%, versus 2.9% in January, and the Producer Price Index for final demand, less foods and energy, was up 3.9%, versus 3.6% in January.
    • The key takeaway from the report is that the uptick in producer prices was seen in both goods (+1.1%) and services (+0.5%), and the added point is that this higher inflation occurred before the war with Iran and subsequent surge in energy prices, which will foment concerns about a worsening inflation situation.
  • Factory orders increased 0.1% month-over-month in January following an upwardly revised 0.4% decline (from -0.7%) in December. Excluding transportation, factory orders increased 0.4% after increasing 0.6% in December. Shipments of manufactured goods rose 0.5% after increasing 0.7% in December.
    • The key takeaway from the report is the tepid level of business spending in January, evidenced by the 0.1% increase in new orders for nondefense capital goods excluding aircraft.
• Commodities:
  • WTI Crude: -0.7% to $95.42/bbl
  • Gold: -2.3% to $4894.60/ozt
  • Copper: -3.0% to $5.59/lb
• Currencies:
  • EUR/USD: -0.5% to 1.1481
  • GBP/USD: -0.5% to 1.3293
  • USD/CNH: +0.2% to 6.8939
  • USD/JPY: +0.4% to 159.71
• The Day Ahead:
  • 08:30 ET: Weekly Initial (Briefing.com consensus: 215K; prior 213K) and Continuing Jobless Claims (prior 1850K)
  • 08:30 ET: March Philadelphia Fed Index (Briefing.com consensus: 4.7; prior 16.3)
  • 10:00 ET: January New Home Sales (Briefing.com consensus: 719K; prior 745K)
  • 10:00 ET: January Wholesale Inventories (Briefing.com consensus: 0.2%; prior 0.2%)
  • 10:30 ET: EIA Natural Gas Inventories (prior -38 bcf)