Bond Market Update

Familiar Concerns Lift Yields to Fresh 2026 Highs

• U.S. Treasuries faced more pressure on Friday, making for a continuation of a three-week selling streak that has been spurred by inflationary concerns stemming from the sharp rise in the price of oil and uncertain maritime security in the Persian Gulf's shipping lanes. Treasuries started the day with modest losses, but they were extended significantly in morning trade, sending yields on the 10-yr note and shorter tenors past yesterday's highs to levels not seen since late July while the 30-yr yield climbed to its highest level since early September. Altogether, this made for the third consecutive week of selling with the 2-yr yield now up 53 basis points for the month while the 10-yr yield has risen by 43 basis points since the end of February. Rate cut expectations have essentially vanished with the market now considering the potential for a hike near the end of the year if high energy prices persist. Today, they got a bit higher, with WTI crude climbing past $98/bbl. The U.S. Dollar Index rose 0.4% to 99.64, narrowing this week's loss to 0.9%.
• Yield Check:
  • 2-yr: +6 bps to 3.89% (+16 bps this week)
  • 3-yr: +8 bps to 3.91% (+16 bps this week)
  • 5-yr: +9 bps to 4.01% (+14 bps this week)
  • 10-yr: +11 bps to 4.39% (+10 bps this week)
  • 30-yr: +11 bps to 4.96% (+5 bps this week)

• News:
  • The People's Bank of China made no changes to its one-year (3.00%) and five-year (3.50%) loan prime rates.
  • China Securities Journal reported that the Chinese government may reform the consumption tax to increase local income.
  • Fitch affirmed New Zealand's AA+ rating but revised the outlook to Negative from Stable.
  • Expectations for a June rate hike from the European Central Bank are solidifying with the market speculating that a hike could come as soon as April.
  • Spain will reduce its taxes on fuel.
  • China's February FDI was down 5.7% YTD (last -5.7%).
  • Hong Kong's February CPI was up 0.5% m/m (last 0.2%), rising 1.7% yr/yr (expected 1.6%; last 1.1%).
  • Singapore's Q4 Unemployment Rate remained at 2.0%, as expected.
  • New Zealand's February trade deficit reached NZD257 mln (expected deficit of NZD740 mln; last deficit of NZD627 mln). February Credit Card Spending was down 1.1% yr/yr (last 0.9%).
  • Eurozone's January trade deficit reached EUR1.9 bln (expected surplus of EUR12.8 bln; last surplus of EUR11.2 bln). Current Account surplus reached EUR37.9 bln (expected surplus of EUR17.2 bln; last surplus of EUR14.6 bln).
  • Germany's February PPI was down 0.5% m/m (expected 0.3%; last -0.6%), falling 3.3% yr/yr (expected -2.7%; last -3.0%).
  • U.K.'s February Public Sector Net Borrowing reached GBP14.30 bln (expected GBP8.70 bln; last -GBP31.9 bln). March CBI Industrial Trends Orders rose to -27 from -28 (expected -30).
  • Italy's January trade surplus reached EUR1.089 bln (expected surplus of EUR5.65 bln; last surplus of EUR5.993 bln).
• Commodities:
  • WTI crude: +2.5% to $98.12/bbl
  • Gold: -0.9% to $4574.30/ozt 
  • Copper: -2.0% to $5.37/lb
• Currencies:
  • EUR/USD: -0.2% to 1.1556
  • GBP/USD: -0.7% to 1.3334
  • USD/CNH: +0.5% to 6.9087
  • USD/JPY: +1.0% to 159.31
• The Week Ahead:
  • Monday: January Construction Spending (prior 0.3%) at 10:00 ET 
  • Tuesday: Revised Q4 Productivity (prior 2.8%) and revised Q4 Unit Labor Costs (prior 2.8%) at 8:30 ET; flash March S&P Global U.S. Manufacturing PMI (prior 50.2) and flash March S&P Global U.S. Services PMI (prior 50.4) at 9:45 ET; and $69 bln 2-yr Treasury note auction results at 13:00 ET
  • Wednesday: Weekly MBA Mortgage Index (prior -10.9%) at 7:00 ET; Q4 Current Account Balance (prior 0.2%) and February Import/Export prices at 8:30 ET; weekly crude oil inventories (prior +6.16 mln) at 10:30 ET; and $70 bln 5-yr Treasury note auction results at 13:00 ET
  • Thursday: Weekly Initial Claims (prior 205,000) and Continuing Claims (prior 1.857 mln) at 8:30 ET; weekly natural gas inventories (prior +35 bcf) at 10:30 ET; and $44 bln 7-yr Treasury note auction results at 13:00 ET
  • Friday: Final March University of Michigan Consumer Sentiment (prior 55.5) at 10:00 ET