Bond Market Update

Lower Start to Shortened Week

• U.S. Treasuries began the abbreviated week on a lower note after the cash session saw an extension of Monday's losses from the Treasury futures market. Treasury futures faced some selling pressure when the market opened on Sunday evening while last night saw an extension of those losses. The selling continued today with shorter tenors leading the way. The 2-yr note paced the early retreat, starting today in a position of relative weakness, but intraday action saw the 2-yr note inch up off its early low while longer tenors widened their losses as the day went on. Today's selling, which took place against the backdrop of mounting rate hike expectations, lifted yields on the 10-yr note and shorter tenors to their highest levels in two years, while the 30-yr yield touched its highest level since June. Today's selling occurred alongside an increase in the price of oil, which ticked above its October high. This combination contributed to a weak showing from equities. The U.S. Dollar Index rose 0.5% to 95.73, climbing toward its 50-day moving average (95.94).
• Yield Check:
  • 2-yr: +7 bps to 1.03%
  • 3-yr: +9 bps to 1.35%
  • 5-yr: +10 bps to 1.65%
  • 10-yr: +9 bps to 1.87%
  • 30-yr: +7 bps to 2.18%

• News:
  • The Q4 earnings report from Goldman Sachs (GS) showed below-consensus EPS on above-consensus revenue and rising compensation costs.
  • The Bank of Japan made no changes to its policy stance, keeping its interest on excess reserves at -0.10%, as expected. The central bank raised its current CPI assessment for the first time since 2014.
  • The People's Bank of China lowered its medium-term lending facility rate by ten basis points to 2.85% and it may also lower its loan prime rate on Thursday.
  • Tokyo and nine other prefectures have reportedly requested new coronavirus measures from the Japanese government.
  • The British government is looking at measures to lower heating costs for consumers.
  • The Italian parliament will begin voting for the country's next president on Monday.
  • Japan's November Industrial Production rose 7.0% m/m (expected 7.2%; last 1.8%) and Capacity Utilization increased 8.0% m/m (last 6.2%).
  • Hong Kong's December Unemployment Rate fell to 3.9% from 4.1%.
  • Eurozone's January ZEW Economic Sentiment rose to 49.4 from 26.8 (expected 29.2).
  • Germany's January ZEW Economic Sentiment rose to 51.7 from 29.9 (expected 32.0) and ZEW Current Conditions fell to -10.2 from -7.4 (expected -8.5).
  • U.K.'s November three-month employment increased by 60,000 (expected 125,000; last 149,000). November Average Earnings Index + Bonus rose 4.2% yr/yr, as expected (last 4.9%). November Unemployment Rate fell to 4.1% from 4.2% (expected 4.2%).
  • Italy's November trade surplus reached EUR4.163 bln (expected surplus of EUR4.230 bln; last surplus of EUR3.891 bln).
  • Swiss December PPI was down 0.1% m/m (expected 0.4%; last 0.5%) but up 5.1% yr/yr (last 5.8%).
• Today's Data:
  • The Empire State Manufacturing survey fell to -0.7 in January (Briefing.com consensus 25.0) from 31.9 in December.
  • The NAHB Housing Market Index fell to 83 in January (Briefing.com consensus 84) from 84 in December.
• Commodities:
  • WTI crude: +1.9% to $85.48/bbl
  • Gold: -0.2% to $1812.00/ozt
  • Copper: -0.8% to $4.384/lb
• Currencies:
  • EUR/USD: -0.7% to 1.1329
  • GBP/USD: -0.3% to 1.3598
  • USD/CNH: +0.2% to 6.3594
  • USD/JPY: UNCH at 114.61
• The Day Ahead:
  • 7:00 ET: Weekly MBA Mortgage Index (prior 1.4%)
  • 10:00 ET: December Housing Starts (Briefing.com consensus 1.650 mln; prior 1.679 mln) and Building Permits (Briefing.com consensus 1.702 mln; prior 1.712 mln)
  • 10:30 ET: Weekly crude oil inventories (prior -4.55 mln)
• Treasury Auction:
  • 13:00 ET: $20 bln 20-yr Treasury Bond reopening results