Bond Market Update

Recent Gains Extended

• U.S. Treasuries climbed for the third consecutive day on Wednesday after a flat start gave way to an intraday rise. The market got off to a flat start after investor sentiment took another overnight hit in reaction to news that chip giant NVIDIA (NVDA) will take a $5.5 bln charge in Q1 due to a new export restriction being imposed by the Trump administration. The news weighed on semiconductor names while Treasuries essentially held steady through the morning even though the market received a big batch of data. That batch featured above-consensus March Retail Sales (1.4%; Briefing.com consensus 1.3%) owed to front-running ahead of tariffs, an in-line dip in March Industrial Production (-0.3%), a smaller-than-expected increase in February Business Inventories (0.2%; Briefing.com consensus 0.3%) and an unexpected increase in the NAHB Housing Market Index for April (40; Briefing.com consensus 39). Treasuries inched above their opening levels in mid-morning trade as equities struggled to cut their losses, rising to fresh highs after a solid 20-yr bond reopening and a speech from Fed Chairman Powell, who appeared at an event in Chicago. He essentially repeated a stance that he has been espousing for the better part of the past six months, saying that the central bank remains well positioned to wait for greater clarity before any policy adjustments. He added that there is an obligation to ensure that a one-time jump in prices from tariffs does not become an ongoing inflation problem. The intraday advance pressured the 10-yr yield back to its closing level from last Tuesday ahead of tomorrow's abbreviated session. Gold cruised to a fresh record high in the $3350/area due to persistent global uncertainty while crude oil climbed after overcoming some overnight weakness. The U.S. Dollar Index fell 0.8% to 99.40, approaching last week's low (99.01), which marks a level not seen since April 2022.
• Yield Check:
  • 2-yr: -4 bps to 3.79%
  • 3-yr: -5 bps to 3.79%
  • 5-yr: -5 bps to 3.91%
  • 10-yr: -4 bps to 4.28%
  • 30-yr: -3 bps to 4.75%

• News:
  • The Atlanta Fed's GDPNow forecast for Q1 GDP was increased to -2.2% from -2.4% in the previous estimate.
  • The World Trade Organization expects a 0.2% decrease in the volume of world merchandise trade in 2025 due to tariffs.
  • The Bank of Canada left its policy rate at 2.75%, as expected.
  • The European Central Bank is widely expected to announce a 25-basis point rate cut tomorrow.
  • China's National Bureau of Statistics acknowledged that the international environment is causing an unfavorable impact on the country's economy, but macro policies are expected to become more proactive in the coming months.
  • China named a new vice commerce minister and a new top trade negotiator.
  • China's Q1 GDP expanded 1.2% qtr/qtr (expected 1.4%; last 1.6%), growing 5.4% yr/yr (expected 5.2%; last 5.4%). March House Prices were down 4.5% yr/yr (last 0.1%), March Fixed Asset Investment rose 4.2% yr/yr (expected 4.1%; last 4.1%), March Industrial Production grew 7.7% yr/yr (expected 5.9%; last 5.9%), and March Retail Sales increased 5.9% yr/yr (expected 4.2%; last 4.0%). March Unemployment Rate fell to 5.2% from 5.4% (expected 5.3%).
  • Japan's April Reuters Tankan Index rose to 9 from -1. February Core Machinery Orders were up 4.3% m/m (expected 1.1%; last -3.5%), rising 1.5% yr/yr (expected -1.4%; last 4.4%).
  • South Korea's March Import Price Index was up 3.4% yr/yr (last 4.3%) and Export Price Index was up 6.3% yr/yr (last 6.3%).
  • Australia's March MI Leading Index was down 0.1% m/m (last 0.1%).
  • Eurozone's final March CPI was up 0.6% m/m, as expected (last 0.4%), rising 2.2% yr/yr, as expected (last 2.3%). Final March Core CPI was up 1.0% m/m, as expected (last 0.5%), rising 2.4% yr/yr, as expected (last 2.6%). February Current Account surplus reached EUR34.3 bln (expected surplus of EUR37.3 bln; last surplus of EUR35.4 bln).
  • U.K.'s March CPI was up 0.3% m/m (expected 0.4%; last 0.4%), rising 2.6% yr/yr (expected 2.7%; last 2.8%). March Core CPI was up 0.5% m/m, as expected (last 0.4%), rising 3.4% yr/yr, as expected (last 3.5%). March RPI was up 0.3% m/m (expected 0.4%; last 0.6%), rising 3.2% yr/yr, as expected (last 3.4%). March House Prices were up 5.4% yr/yr (expected 5.1%; last 4.9%).
  • Italy's March CPI was up 0.3% m/m (expected 0.4%; last 0.2%), rising 1.9% yr/yr (expected 2.0%; last 1.6%).
• Today's Data:
  • Total retail sales increased 1.4% month-over-month in March (Briefing.com consensus 1.3%) following an unrevised 0.2% increase in February. Excluding autos, retail sales rose 0.5% month-over-month (Briefing.com consensus 0.2%) following an upwardly revised 0.7% increase (from 0.3%) in February.
    • The complicated element -- and key takeaway from the report -- is that the strength has a lot to do ostensibly with getting ahead of the tariff actions, which is to say the strength may not be sustained. If there is a counterargument to that point, it is that sales at food services and drinking places were up a robust 1.8% in March after declining 0.8% in February.
  • Total industrial production decreased 0.3% month-over-month in March (Briefing.com consensus -0.3%) following an upwardly revised 0.8% increase (from 0.7%) in February. The capacity utilization rate fell to 77.8% (Briefing.com consensus 77.9%) from 78.2% in February. Total industrial production increased 1.3% yr/yr while the capacity utilization rate was 1.8 percentage points below its long-run average.
    • The key takeaway from the report is that the large decline in the output of utilities overshadowed the increase in manufacturing output and mining output, so the headline decline isn't as bad as it looks at first blush.
  • The weekly MBA Mortgage Index fell 8.5% to follow last week's 20.0% jump. The Purchase Index was down 4.9% while the Refinance Index fell 12.4%.
  • The NAHB Housing Market Index rose to 40 in April (Briefing.com consensus 39) from 39 in March.
  • Business Inventories increased 0.2% in February (Briefing.com consensus 0.3%) after increasing 0.3% in January.
  • Weekly crude oil inventories increased by 515,000 barrels after increasing by 2.55 mln barrels a week ago.
  • $13 bln 20-year Treasury bond reopening results (prior 12-auction average):
    • High yield: 4.810% (4.574%).
    • Bid-to-cover: 2.63 (2.60).
    • Indirect bid: 70.7% (69.8%).
    • Direct bid: 12.3% (17.4%).
• Commodities:
  • WTI crude: +0.8% to $61.83/bbl
  • Gold: +3.1% to $3341.00/ozt
  • Copper: +1.3% to $4.68/lb
• Currencies:
  • EUR/USD: +1.0% to 1.1395
  • GBP/USD: +0.1% to 1.3237
  • USD/CNH: -0.4% to 7.2967
  • USD/JPY: -0.9% to 141.85
• The Day Ahead:
  • 8:30 ET: March Housing Starts (Briefing.com consensus 1.418 mln; prior 1.501 mln), Building Permits (Briefing.com consensus 1.455 mln; prior 1.456 mln), weekly Initial Claims (Briefing.com consensus 225,000; prior 223,000), Continuing Claims (prior 1.850 mln), and April Philadelphia Fed Survey (Briefing.com consensus 10.0; prior 12.5)
  • 10:30 ET: Weekly natural gas inventories (prior +57 bcf)
  • 14:00 ET: Early close