Bond Market Update

Receding Geopolitical Fears Provide Friday Boost

• U.S. Treasuries had a strong finish to the week, pressuring yields on most tenors to their lowest closing levels in a month. The trading day started with slim gains after a quiet night in global markets. Asian equities faced some profit taking after a strong week, even though the market grew more confident that the Iran conflict is nearing a conclusion. That sentiment strengthened during the day after Iran's foreign minister said that the Strait of Hormuz is open after the ceasefire agreement between Israel and Lebanon. That announcement sent the price of oil to a five-week low while Treasuries built on their slim opening gains, pressuring yields on the 10-yr note and shorter tenors to one-month lows. Later in the day, President Trump said that he expects a deal to come together in the next couple days and that Iran agreed to suspend its nuclear program indefinitely. Today's rally put the potential for a December rate cut back on the table, with the implied likelihood of a reduction at that time now essentially a toss-up, up from just 30% yesterday. Crude oil extended this week's loss to $12/bbl, finishing below $85/bbl, while the U.S. Dollar Index fell 0.2% to 98.01, giving up 0.7% for the week.
• Yield Check:
  • 2-yr: -8 bps to 3.70% (-10 bps this week)
  • 3-yr: -8 bps to 3.72% (-10 bps this week)
  • 5-yr: -8 bps to 3.84% (-10 bps this week)
  • 10-yr: -6 bps to 4.25% (-7 bps this week)
  • 30-yr: -4 bps to 4.89% (-2 bps this week)

• News:
  • Next meeting between officials from the U.S. and Iran is expected to take place in Pakistan on Monday, according to The Wall Street Journal.
  • President Trump called on domestic oil companies to increase production, according to FT.
  • Fitch noted that China's credit outlook remains bogged down by weak domestic demand.
  • The People's Bank of China increased the cap on bank lending to offshore entities.
  • European Central Bank policymaker Muller said that it should not be assumed that the energy shock will be temporary, adding that he is not ruling out a rate hike this month.
  • Singapore's March trade surplus reached SGD11.22 bln (last surplus of SGD4.57 bln) as non-oil exports rose 3.0% m/m (last 3.9%); 15.3% yr/yr (last 4.0%).
  • New Zealand's March Electronic Card Retail Sales rose 0.7% m/m (last 1.4%), increasing 2.7% yr/yr (last 1.5%). March FPI was down 0.6% m/m (last -0.1%).
  • Eurozone's February trade surplus reached EUR11.5 bln (expected surplus of EUR11.7 bln; last deficit of EUR1.0 bln). February Current Account surplus reached EUR24.9 bln (expected surplus of EUR29.8 bln; last surplus of EUR40.4 bln).
  • Italy's February trade surplus reached EUR4.944 bln (expected surplus of EUR3.83 bln; last surplus of EUR1.13 bln).
• Commodities:
  • WTI crude: -11.1% to $84.22/bbl
  • Gold: +1.6% to $4880.50/ozt
  • Copper: +0.5% to $6.11/lb
• Currencies:
  • EUR/USD: UNCH at 1.1781
  • GBP/USD: +0.1% to 1.3537
  • USD/CNH: -0.1% to 6.8159
  • USD/JPY: -0.4% to 158.43
• The Week Ahead:
  • Monday: Nothing of note
  • Tuesday: March Retail Sales (Briefing.com consensus 1.3%; prior 0.6%) and Retail Sales ex-auto (Briefing.com consensus 0.9%; prior 0.5%) at 8:30 ET; February Business Inventories (Briefing.com consensus 0.1%; prior -0.1%) and March Pending Home Sales (Briefing.com consensus 0.5%; prior 1.8%) at 10:00 ET
  • Wednesday: Weekly MBA Mortgage Index (prior 1.8%) at 7:00 ET; weekly crude oil inventories (prior -913,000) at 10:30 ET; and $13 bln 20-yr Treasury bond reopening results at 13:00 ET
  • Thursday: Weekly Initial Claims (Briefing.com consensus 212,000; prior 207,000), Continuing Claims (prior 1.818 mln) at 8:30 ET; flash S&P Global U.S. Manufacturing PMI (prior 52.3) and flash S&P Global U.S. Services PMI (prior 49.8) at 9:45 ET; and weekly natural gas inventories (prior +59 bcf) at 10:30 ET
  • Friday: final April University of Michigan Consumer Sentiment (Briefing.com consensus 47.6; prior 47.6) at 10:00 ET