Bond Market Update

Accelerating Oil Rally Lifts Yields Toward March Highs

• U.S. Treasuries retreated on Wednesday, lifting the 30-yr yield back to its March high while yields on shorter tenors also approached their highest levels from last month as crude oil raced past $105/bbl. Treasuries started the day with slim losses, but additional selling pressure built shortly after the open alongside upward pressure on the price of oil. A report from The Wall Street Journal that President Trump is planning an extended naval blockade of Iran contributed to oil's rise to a level not seen in three weeks while Treasuries responded to the expected inflationary impact of this increase. The selling continued into the afternoon with the market reaching lows after the release of the latest FOMC Statement, which did not call for any immediate policy changes, but Fed presidents from Cleveland, Minneapolis, and Dallas objected to including an easing bias in the Statement, suggesting a growing hawkish tilt. Fed Governor Miran also dissented, voting in favor of a rate cut. Fed Chairman Powell delivered his final press conference today, revealing that he will remain on the Board of Governors for some time after his term as Chairman ends on May 15. On a side note, his term as Fed Governor expires in January 2028. The U.S. Dollar Index rose 0.3% to 98.97, reclaiming its 50-day moving average (98.95).
• Yield Check:
  • 2-yr: +9 bps to 3.93%
  • 3-yr: +8 bps to 3.95%
  • 5-yr: +8 bps to 4.07%
  • 10-yr: +6 bps to 4.42%
  • 30-yr: +4 bps to 4.99%

• News:
  • Fed Chairman nominee Warsh will face a confirmation vote from the full Senate after being approved by the Senate Banking Committee.
  • Japan's Finance Minister Katayama said that her office is ready to respond to sudden moves in the foreign exchange market.
  • China is reportedly planning to double its refined fuel exports in May.
  • Australia's Treasury expects inflation to peak at higher levels, given the recent jump in energy prices.
  • The Times Shadow committee voted 5-4 to recommend no BoE policy change.
  • Australia's Q1 CPI was up 1.4% qtr/qtr, as expected (last 0.6%), rising 4.1% yr/yr (expected 4.2%; last 3.6%). March Monthly CPI Indicator was up 4.6% (expected 4.8%; last 3.7%).
  • Eurozone's April Business and Consumer Survey fell to 93.0 from 96.2 (expected 95.2). March Private Sector Loans rose 3.0% yr/yr (expected 3.1%; last 3.0%) and loans to nofinancials rose 3.2% (last 2.9%).
  • Germany's April CPI was up 0.6% m/m (expected 0.7%; prior 1.1%), rising 2.9% yr/yr (expected 3.0%; last 2.7%).
  • Spain's April CPI was up 0.4% m/m (expected 0.6%; last 1.2%), rising 3.2% yr/yr (expected 3.5%; last 3.4%). April Core CPI was up 2.8% yr/yr (last 2.9%).
  • Italy's April Consumer Confidence fell to 90.8 from 92.6 (expected 91.2) and Business Confidence fell to 87.9 from 88.7 (expected 88.0).
  • Swiss April ZEW Expectations rose to -30.3 from -35.0.
• Today's Data:
  • Housing starts increased 10.8% month-over-month in March to a seasonally adjusted annual rate of 1.502 million units. Building permits, meanwhile, declined 10.8% month-over-month in March to a seasonally adjusted annual rate of 1.372 million units.
    • The key takeaway from the report is that there was broad-based strength in starts by region but also broad-based weakness in permits by region. The latter is the better indicator for the impact of the Iran war and the uncertainty it has created because permits are a leading indicator.
  • Durable goods orders increased 0.8% month-over-month in March (Briefing.com consensus: 0.5%) following an upwardly revised 1.2% decline (from -1.4%) in February. Excluding transportation, orders were up 0.9% month-over-month (Briefing.com consensus: 0.6%) following an upwardly revised 1.2% increase (from 0.8%) in February.
    • The key takeaway from the report is that there was a big jump (+3.3%) in new orders for nondefense capital goods excluding aircraft. This is a proxy for business spending, and it is believed to reflect in part the pickup in capital expenditures for AI initiatives.
  • The Advance Intl. Trade in Goods deficit was $87.9 billion in March versus $83.5 billion in February.
  • Advance Wholesale Inventories were up 1.4% following a 0.9% increase in February.
  • Advance Retail Inventories jumped 0.7% in March following a 0.3% increase in February.
    • The key takeaway from the report is that the uptick in inventories should provide a boost to Q1 GDP.
  • The weekly MBA Mortgage Index fell 1.6% to follow last week's 7.9% increase. The Purchase Index rose 1.2% while the Refinance Index was down 4.4%.
  • Weekly crude oil inventories decreased by 6.234 mln barrels after increasing by 1.925 mln barrels a week ago.
• Commodities:
  • WTI crude: +7.0% to $106.98/bbl
  • Gold: -1.0% to $4561.00/ozt
  • Copper: -0.5% to $5.94/lb
• Currencies:
  • EUR/USD: -0.4% to 1.1668
  • GBP/USD: -0.3% to 1.3468
  • USD/CNH: +0.2% to 6.8485
  • USD/JPY: +0.5% to 160.37
• The Day Ahead:
  • 8:30 ET: Advance Q1 GDP (Briefing.com consensus 2.1%; prior 0.5%), advance Q1 GDP Deflator (Briefing.com consensus 3.3%; prior 3.7%), March Personal Income (Briefing.com consensus 0.4%; prior -0.1%), Personal Spending (Briefing.com consensus 0.4%; prior 0.5%), PCE Prices (Briefing.com consensus 0.6%; prior 0.4%), Core PCE Prices (Briefing.com consensus 0.3%; prior 0.4%), Q1 Employment Cost Index (Briefing.com consensus 0.8%; prior 0.7%), weekly Initial Claims (Briefing.com consensus 217,000; prior 214,000), and Continuing Claims (prior 1.821 mln)
  • 9:45 ET: April Chicago PMI (Briefing.com consensus 52.4; prior 52.8)
  • 10:30 ET: Weekly natural gas inventories (prior +103 bcf)