Bond Market Update

Improved Sentiment Offers Monday Boost

• U.S. Treasuries began the week with gains across the curve, pressuring yields from Q1 highs, amid some improvement in geopolitical sentiment. Capital markets were on track for an early extension of Friday's dynamic that saw heavy selling in stocks and bonds after President Trump gave Iran 48 hours to fully open the Strait of Hormuz or face attacks on its energy infrastructure. However, concerns about a potential broadening of the conflict receded significantly when President Trump said early this morning that strikes on Iranian targets will be paused for five days to allow for negotiations. The news sparked an immediate improvement in sentiment, boosting equity and Treasury futures while oil plunged $10/bbl. Treasuries built on their starting gains in morning trade before some late morning selling briefly drove the 30-yr bond below its opening level. However, the market showed resilience with a late push that returned all tenors to mid-morning levels, leaving them with the bulk of today's gains. Crude oil fell below $90/bbl, nearing a two-week low, while the U.S. Dollar Index fell 0.7% to 98.95.
• Yield Check:
  • 2-yr: -6 bps to 3.83%
  • 3-yr: -7 bps to 3.84%
  • 5-yr: -6 bps to 3.95%
  • 10-yr: -6 bps to 4.33%
  • 30-yr: -5 bps to 4.91%

• News:
  • Municipal elections in France produced some gains for National Rally.
  • Germany has maintained its debt issuance plans for Q2.
  • European Central Bank policymaker Kazimir said that rates remain in good place while policymaker De Guindos said that the central bank will react if necessary.
  • Singapore's February CPI was up 0.6% m/m (last -0.5%), rising 1.2% yr/yr (last 1.4%). February Core CPI was up 1.4% yr/yr (last 1.0%).
  • Taiwan's February exports to the U.S. were up 24% yr/yr while exports to Japan grew 18% yr/yr.
  • Japan will spend about JPY800 bln to offset high gasoline prices.
  • South Korea's President Lee nominated Shin Hyun-song to be the next governor of the Bank of Korea.
  • Spain's January trade deficit reached EUR4.00 bln (last deficit of EUR5.57 bln).
• Today's Data:
  • Construction spending decreased 0.3% month-over-month in January (Briefing.com consensus: 0.1%) following an upwardly revised 0.8% increase (from 0.3%) in December. On a year-over-year basis, construction spending was up 1.0%.
    • The key takeaway from the report is that the weakness was paced by a decline in private residential spending, which is believed to be a knock-on effect of labor constraints and higher interest rates.
• Commodities:
  • WTI crude: -10.1% to $88.19/bbl
  • Gold: -3.7% to $4407.20/ozt
  • Copper: +1.9% to $5.47/lb
• Currencies:
  • EUR/USD: +0.5% to 1.1628
  • GBP/USD: +0.8% to 1.3449
  • USD/CNH: -0.3% to 6.8819
  • USD/JPY: -0.7% to 158.17
• The Day Ahead:
  • 8:30 ET: Revised Q4 Productivity (prior 2.8%) and revised Q4 Unit Labor Costs (prior 2.8%)
  • 9:45 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)
• Treasury Auctions:
  • 13:00 ET: $69 bln 2-yr Treasury note auction results