Bond Market Update

Back from the Brink

• U.S. Treasuries had a rough overnight session, reacting negatively to rising oil prices and the stark realization that rate cuts from the Fed (and other central banks) are going to be pushed out due to the uncertainty surrounding the war with Iran (the BOJ, BOE, Swiss National Bank, and ECB followed the Fed in voting to keep their policy rates unchanged). The 2-yr note yield reached 3.94%, and the 10-yr note yield hit 4.32% at their highs of the day, which were reached shortly after the release of the better-than-expected initial jobless claims report. There was a nice reversal from there, however, driven by technical buying support and short-covering activity. The 2-yr eventually backed down to 3.81%, while the 10-yr fell to 4.26% before easing a bit ahead of today's settlement. [Postscript: after today's settlement, yields fell further on Israeli Prime Minister Netanyahu's declaration that Iran can no longer enrich uranium or manufacture ballistic missiles, and that the war will end sooner than people think.]
• Yield Check:
  • 2-yr: +8 bps to 3.83%
  • 3-yr: +8 bps to 3.83%
  • 5-yr: +6 bps to 3.92%
  • 10-yr: +2 bps to 4.28%
  • 30-yr: -3 bps to 4.85%

• News:
  • President Trump says U.S. knew nothing about Israel's attack on South Pars Gas Field in Iran; says no more attacks will be made by Israel pertaining to South Pars Field unless Iran decides to attack Qatar; says if Iran does attack Qatar U.S. will "massively blow up the entirety" of the South Pars Gas Field "at an amount of strength and power that Iran has never seen or witnessed before"
  • President Trump says he told Israeli Prime Minister Benjamin Netanyahu not to bomb Iran's oil facilities anymore; says he will not be putting troops anywhere
  • Qatar says Iranian missiles caused extensive damage at a key hub for liquified natural gas. WSJ
  • The Trump administration is considering deploying thousands of additional soldiers to the Middle East and is also considering sending ground forces to Iran's Kharg Island. Reuters
  • EU natural gas prices surged more than 20%. WSJ
  • Secretary of Energy Chris Wright says "To be clear, the Trump administration has no plan to implement restrictions on oil and gas exports."
  • Senate Majority Leader John Thune says Senate will not go on recess at the end of next week if DHS is not funded, according to Politico
  • Freddie Mac & Fannie Mae remove certain homeowners insurance requirements that will reduce costs
  • The Bank of Japan left its key policy rate unchanged at 0.75%, as expected, with the uncertainty about the Middle East unrest contributing to the decision. It was an 8-1 vote. The lone dissenter (Takata) wanted a 25-basis-point hike.
  • The Bank of England voted unanimously to leave its key policy rate unchanged at 3.75%, as expected.
  • The ECB left its key policy rates unchanged, as expected.
  • The Swiss National Bank kept its key policy rate unchanged at 0.00%, as expected.
  • Sweden's Riksbank said its repo rate is not likely to change for some time.
• Today's Data:
  • Initial jobless claims for the week ending March 14 decreased by 8,000 to 205,000 (Briefing.com consensus: 215,000). Continuing jobless claims for the week ending March 7 increased by 10,000 to 1.857 million.
    • The key takeaway from the report is that the low level of initial jobless claims will keep the Fed preoccupied for now with the inflation side of its mandate, which is to say it won't be inclined to cut rates.
  • New home sales declined 17.6% month-over-month in January to a seasonally adjusted annual rate of 587,000 (Briefing.com consensus: 719,000), significantly undershooting expectations. On a year-over-year basis, new home sales were down 11.3%.
    • The key takeaway from the report is that sharp declines were registered in all regions, despite declines in both median and average selling prices, which suggests some demand attrition in the face of elevated mortgage rates and perhaps burgeoning concerns about job security.
  • The March Philadelphia Fed Index checked in at 18.1 (Briefing.com consensus: 4.7) versus 16.3 in February. The dividing line between expansion and contraction for this index is 0.0, so the March reading reflects a slight acceleration from the prior month in manufacturing activity.
  • January wholesale inventories declined 0.5% month-over-month (Briefing.com consensus: 0.2%) following a downwardly revised 0.1% decline (from 0.2%) in December.
  • The January Leading Economic Index was down 0.1% following a 0.2% decline in December.
• Commodities:
  • WTI Crude: +0.3% to $95.71/bbl
  • Gold: -5.7% to $4615.80/ozt
  • Copper: -2.0% to $5.48/lb
• Currencies:
  • EUR/USD: +1.3% to 1.1603
  • GBP/USD: +1.5% to 1.3457
  • USD/CNH: -0.4% to 6.8761
  • USD/JPY: -1.4% to 157.57
• The Day Ahead:
  • There is no U.S. economic data of note