Bond Market Update

Pullback Deepens

• U.S. Treasuries retreated on Tuesday with shorter tenors extending their losses from Monday while the long bond reluctantly followed after holding its ground yesterday. The market faced some early pressure after a night that saw the release of solid February labor market figures from the U.K., which sent the 10-yr Gilt yield to 5.15%, its highest level in 28 years. Treasuries held their ground in immediate reaction to the March Retail Sales report (1.7%; Briefing.com consensus 1.3%), which beat expectations, largely thanks to higher gas prices. The early losses were extended in mid-morning trade as the market grew more concerned about the lack of updates from U.S.-Iran negotiations. The market learned in the late morning that Vice President Vance was still in Washington with just over 24 hours until tomorrow's expiration of the ceasefire agreement. Today's selling lifted yields on 10s and shorter tenors to levels from the middle of last week while relative strength in the long bond kept its yield near the midpoint of yesterday's range. Crude oil climbed back above $90/bbl, pausing just below its settlement from Thursday. The U.S. Dollar Index rose 0.3% to 98.41, tagging its 200-day moving average (98.53) in the process.
• Yield Check:
  • 2-yr: +6 bps to 3.78%
  • 3-yr: +6 bps to 3.79%
  • 5-yr: +6 bps to 3.91%
  • 10-yr: +4 bps to 4.29%
  • 30-yr: +2 bps to 4.90%

• News:
  • Fitch expects China's fiscal deficit to remain at 7.3% of GDP in 2026.
  • South Korea's exports were up 49.4% through the first 20 days of April with chip exports jumping 182.5%.
  • China Securities Journal noted that measures aimed at stabilizing the stock market have gained traction.
  • German Chancellor Merz called for significant reforms to reduce labor costs, energy prices, taxes, and social contributions.
  • European Central Bank policymaker Rehn said that there is no set rate path and that the current starting point is "reasonably balanced" while ECB President Lagarde said that the central bank's response will be determined by the duration of the energy shock.
  • French Prime Minister Lecornu is seeking EUR4 bln in spending cuts.
  • Germany's ZEW institute noted that expectations are slipping into negative territory.
  • New Zealand's Q1 CPI was up 0.9% qtr/qtr (expected 0.8%; last 0.6%), rising 3.1% yr/yr (expected 2.9%; last 3.1%). Q1 NZIER Business Confidence fell to -4% from 48% and Q1 NZIER Capacity Utilization rose to 91.2% from 89.8%.
  • Eurozone's April ZEW Economic Sentiment fell to -20.4 from -8.5 (expected -12.7).
  • Germany's April ZEW Economic Sentiment fell to -17.2 from -0.5 (expected -6.7) and ZEW Current Conditions fell to -73.7 from -62.9 (expected -70.0).
  • U.K.'s February three-month employment increased by 25,000 (last 84,000). February Average Earnings Index + Bonus was up 3.8% yr/yr (expected 3.6%; last 4.1%). February Unemployment Rate fell to 4.9% from 5.2% (expected 5.2%) and March Claimant Count increased by 26,800 (expected 21,400; last 17,100).
  • Spain's February trade deficit reached EUR3.30 bln (last deficit of EUR4.00 bln).
  • Swiss March trade surplus reached CHF3.177 bln (last surplus of CHF4.105 bln).
• Today's Data:
  • Total retail sales increased 1.7% month-over-month in March (Briefing.com consensus: 1.3%), driven by a 15.5% increase in gasoline sales, following an upwardly revised 0.7% increase (from 0.6%) in February. Excluding autos, retail sales surged 1.9% (Briefing.com consensus: 0.9%) following an upwardly revised 0.7% increase (from 0.5%) in February.
    • The key takeaway from the report is that retail sales look great from a headline perspective, but higher gas prices and higher prices in general were the main drivers. Excluding gasoline sales, retail sales were up 0.6% month-over-month, which looks good, but remember retail sales are not adjusted for price changes. Accordingly, it becomes evident that the sales gains in March were driven more by higher prices than increased volume, which is a better indication of demand.
  • Pending Home Sales were up 1.5% in March (Briefing.com consensus 0.5%) after increasing a revised 2.5% (from 1.5%) in February.
  • Business Inventories were up 0.4% in February (Briefing.com consensus 0.1%) after decreasing 0.1% in January.
• Commodities:
  • WTI crude: +2.7% to $91.80/bbl
  • Gold: -2.3% to $4719.10/ozt
  • Copper: -0.5% to $6.01/lb
• Currencies:
  • EUR/USD: -0.4% to 1.1743
  • GBP/USD: -0.2% to 1.3504
  • USD/CNH: +0.2% to 6.8277
  • USD/JPY: +0.4% to 159.34
• The Day Ahead:
  • 7:00 ET: Weekly MBA Mortgage Index (prior 1.8%)
  • 10:30 ET: Weekly crude oil inventories (prior -913,000)
• Treasury Auctions:
  • 13:00 ET: $13 bln 20-yr Treasury bond reopening results