Bond Market Update

Modest Bounce Caps Volatile Week

• U.S. Treasuries followed four days of selling with a volatile Friday session that produced a modest bounce in shorter tenors while the long bond underperformed after showing some relative strength earlier this week. The market started the final session of the week with losses across the curve after a continued rise in the price of oil during the overnight session. WTI crude revisited its 2024 high in the $86/bbl area in morning trade, later continuing toward its 2023 high ($95). Altogether, oil climbed $23.80/bbl, or 35.5%, this week, which pressured the market's rate cut expectations. However, today's release of a disappointing Employment Situation report for February (-92,000; Briefing.com consensus 60,000) got the market thinking that a July rate cut might happen after all, since the FOMC also must consider the employment side of its dual mandate. The lower start gave way to a bounce in immediate reaction to the jobs report, but the rest of the morning saw a return to lows in most tenors. However, the 2-yr note resisted, showing some resilience after underperforming earlier this week. The early selling briefly drove the 2-yr yield to its 200-day moving average (3.632%) while the ensuing bounce pressured the 2-yr yield back toward its 50-day moving average (3.511%). Crude oil settled at level not seen since late 2023 while the U.S. Dollar Index fell 0.4% to 98.97, narrowing this week's gain to 1.4%.
• Yield Check:
  • 2-yr: -4 bps to 3.56% (+18 bps this week)
  • 3-yr: -4 bps to 3.58% (+20 bps this week)
  • 5-yr: -3 bps to 3.72% (+21 bps this week)
  • 10-yr: -1 bp to 4.13% (+17 bps this week)
  • 30-yr: UNCH at 4.76% (+14 bps this week)

• News:
  • Cleveland Fed President Hammack (FOMC voter) said that the fed funds rate range will likely remain at its current level for some time, according to Reuters.
  • NEC Director Hassett said that are no plans to utilize the strategic petroleum reserve at this time.
  • The Wall Street Journal reported that Treasury Secretary Bessent will ask China to reduce its purchases of oil from U.S. adversaries ahead of President Trump's planned visit to China.
  • South Korea's vice finance minister said that a price ceiling for petroleum prices will be established.
  • European Central Bank policymaker De Guindos said that the central bank's policy stance could change if inflation expectations are affected by the war with Iran.
  • South Korea's February CPI was up 0.3% m/m (expected 0.4%; last 0.4%), rising 2.0% yr/yr (expected 2.1%; last 2.0%). January Current Account surplus reached $13.26 bln (last surplus of $18.70 bln).
  • Eurozone's Q4 GDP expanded 0.2% qtr/qtr (expected 0.3%; last 0.3%), growing 1.2% yr/yr, as expected (last 1.4%). Q4 Employment increased by 0.2% qtr/qtr, as expected (last 0.2%).
• Today's Data:
  • February nonfarm payrolls declined by 92,000 (Briefing.com consensus: 60,000). The 3-month average for total nonfarm payrolls decreased to 6,000 from 50,000. January nonfarm payrolls revised to 126,000 from 130,000. December nonfarm payrolls revised to -17,000 from 48,000.
    • February private sector payrolls declined by 86,000 (Briefing.com consensus: 78,000). January private sector payrolls revised to 146,000 from 172,000. December private sector payrolls revised to -7,000 from 64,000.
    • February unemployment rate was 4.4% (Briefing.com consensus: 4.3%) versus 4.3% in January. Persons unemployed for 27 weeks or more accounted for 25.3% of the unemployed versus 24.7% in January. The U6 unemployment rate, which accounts for unemployed and underemployed workers, decreased to 7.9% from 8.1% in January.
    • February average hourly earnings were up 0.4% (Briefing.com consensus: 0.3%) versus a 0.4% increase in January. Over the last 12 months, average hourly earnings have risen 3.8%, versus 3.7% for the 12 months ending in January.
    • The average workweek in February was 34.3 hours (Briefing.com consensus: 34.3) versus 34.3 hours in January. The manufacturing workweek dipped 0.1 hour to 40.1 hours. Factory overtime was unchanged at 3.0 hours.
    • The labor force participation rate decreased to 62.0% from 62.1% in January while the employment-population ratio decreased to 59.3% from 59.4% in January.
  • Total retail sales were down 0.2% month-over-month in January (Briefing.com consensus: -0.1%) following an unchanged reading for December. Excluding autos, retail sales were flat (Briefing.com consensus: 0.2%) for the second straight month.
    • The key takeaway from the report is that sales activity was disrupted by the winter storms, so the result isn't as disappointing as it looks, which comes through in the fact that nonstore retailer sales were up a robust 1.9% month-over-month.
  • Consumer credit increased by $8.1 billion in January (Briefing.com consensus: $9.9 billion) following an upwardly revised $25.2 billion increase (from $24.0 billion) in December.
    • The key takeaway from the report is that the credit expansion was modest but fairly balanced in January, with revolving and nonrevolving credit both increasing for the month.
  • Business Inventories increased by 0.1% in December after a revised flat reading (from +0.1%) in November.
• Commodities:
  • WTI crude: +12.2% to $90.86/bbl
  • Gold: +1.6% to $5159.30/ozt
  • Copper: UNCH at $5.81/lb
• Currencies:
  • EUR/USD: -0.1% to 1.1601
  • GBP/USD: +0.2% to 1.3383
  • USD/CNH: -0.1% to 6.9073
  • USD/JPY: +0.3% to 157.92
• The Week Ahead:
  • Monday: Nothing of note
  • Tuesday: February NFIB Small Business Optimism (Briefing.com consensus 99.5; prior 99.3) at 6:00 ET; February Existing Home Sales (Briefing.com consensus 3.88 mln; prior 3.91 mln) at 10:00 ET; and $58 bln 3-yr Treasury note auction results at 13:00 ET
  • Wednesday: Weekly MBA Mortgage Index (prior 11.0%) at 7:00 ET; February CPI (Briefing.com consensus 0.3%; prior 0.2%) and Core CPI (Briefing.com consensus 0.2%; prior 0.3%) at 8:30 ET; weekly crude oil inventories (prior +3.48 mln) at 10:30 ET; $39 bln 10-yr Treasury note reopening results at 13:00 ET; and February Treasury Budget (Briefing.com consensus -$170.0 bln; prior -$94.6 bln) at 14:00 ET
  • Thursday: January Housing Starts (Briefing.com consensus 1.340 mln; prior 1.404 mln) and Building Permits (Briefing.com consensus 1.392 mln; prior 1.448 mln), January Trade Balance (Briefing.com consensus -$67.9 bln; prior -$70.3 bln), weekly Initial Claims (Briefing.com consensus 215,000; prior 213,000), and Continuing Claims (prior 1.868 mln) at 8:30 ET; January Factory Orders (prior -0.7%) at 10:00 ET; weekly natural gas inventories (prior -132 bcf) at 10:30 ET; and $22 bln 30-yr Treasury bond reopening results at 13:00 ET
  • Friday: January Personal Income (Briefing.com consensus 0.4%; prior 0.3%), Personal Spending (Briefing.com consensus 0.2%; prior 0.4%), PCE Prices (Briefing.com consensus 0.3%; prior 0.4%), Core PCE Prices (Briefing.com consensus 0.4%; prior 0.4%), Q4 GDP -- second estimate (Briefing.com consensus 1.4%; prior 1.4%), Q4 GDP Deflator -- second estimate (Briefing.com consensus 3.7%; prior 3.6%), January Durable Orders (Briefing.com consensus 0.7%; prior -1.4%), and Durable Orders -ex transportation (Briefing.com consensus 0.5%; prior 0.9%) at 8:30 ET; January job openings (prior 6.542 mln) and preliminary March University of Michigan Consumer Sentiment (Briefing.com consensus 55.7; prior 56.6) at 10:00 ET