Bond Market Update

Iran Strikes Weigh on Short End

• U.S. Treasuries are on track for a lower start with shorter tenors expected to pace the early selling after last week's rally. Treasury futures started the overnight session with solid gains that faded immediately. The market faced continued pressure through the night with most tenors hitting lows this morning as investors reacted to joint Israel-U.S. military action against Iran, which resulted in the killing of Supreme Leader Khameni. President Trump said that he expects the war to last up to five weeks, but that is only an uncertain estimate. Like Treasury futures, equity futures have faced some pressure while crude oil has jumped above $70/bbl. The greenback has also seen broad strength, sending the U.S. Dollar Index higher by 0.8% to 98.39.
• Yield Check:
  • 2-yr: +6 bps to 3.44%
  • 3-yr: +6 bps to 3.44%
  • 5-yr: +5 bps to 3.56%
  • 10-yr: +3 bps to 3.99%
  • 30-yr: +2 bps to 4.65%

• News:
  • OPEC agreed to increase its output in April, in line with speculation from late last week.
  • Bank of Japan Deputy Governor Himino said that rate hikes will continue, but he did not specify the planned timing of the next increase.
  • China's January FDI was down 5.7% YTD (last -9.5%).
  • Japan's February Manufacturing PMI hit 53.0 (expected 52.8; last 51.5)
  • South Korea's February trade surplus reached $15.51 bln (expected surplus of $10.00 bln; last surplus of $8.72 bln) as imports grew 7.5% yr/yr (expected 13.0%; last 11.6%) and exports jumped 29.0% yr/yr (expected 24.0%; last 33.8%).
  • Australia's February Manufacturing PMI hit 51.0 (expected 51.5; last 52.3). February MI Inflation Gauge was down 0.2% m/m (last 0.2%), and February Commodity Prices rose 2.7% yr/yr (last 2.7%). Q4 Company Gross Operating Profits were up 5.8% qtr/qtr (expected 1.8%; last 1.5%) and Q4 Company Pre-tax profits were up 1.6% qtr/qtr (last 0.4%).
  • India's February Manufacturing PMI hit 56.9 (expected 57.5; last 55.4). January Industrial Production was up 4.8% yr/yr (expected 6.5%; last 7.8%) and January Manufacturing Output was also up 4.8% (last 8.1%).
  • Eurozone's February Manufacturing PMI hit 50.8, as expected (last 49.5).
  • Germany's January Retail Sales fell 0.9% m/m (expected 0.0%; last 1.2%) but were up 1.2% yr/yr (last 4.3%). February Manufacturing PMI hit 50.9 (expected 50.7; last 49.1).
  • U.K.'s February Nationwide HPI was up 0.3% m/m (expected 0.2%; last 0.3%), rising 1.0% yr/yr (expected 0.7%; last 1.0%). February Manufacturing PMI hit 51.7 (expected 52.0; last 52.0). January Mortgage Approvals reached 60,000 (expected 62,000; last 61,010) and January Net Lending to Individuals reached GBP5.90 bln (expected GBP6.20 bln; last GBP6.10 bln).
  • France's February Manufacturing PMI hit 50.1 (expected 49.9; last 51.2).
  • Italy's February Manufacturing PMI hit 50.6 (expected 49.1; last 48.1).
  • Spain's February Manufacturing PMI hit 50.0 (expected 49.9; last 49.2).
  • Swiss January Retail Sales were down 1.1% yr/yr (expected 2.7%; last 2.8%) and February Manufacturing PMI hit 47.4 (expected 49.8; last 48.8).
• Commodities:
  • WTI Crude: +8.7% to $72.81/bbl
  • Gold: +3.1% to $5411.50/ozt
  • Copper: -0.6% to $6.025/lb
• Currencies:
  • EUR/USD: -0.9% to 1.1703
  • GBP/USD: -0.6% to 1.3392
  • USD/CNH: +0.4% to 6.8916
  • USD/JPY: +0.9% to 157.35
• Data out Today:
  • 9:45 ET: Final February S&P Global U.S. Manufacturing PMI (prior 51.2)
  • 10:00 ET: February ISM Manufacturing Index (prior 52.6%)