Bond Market Update

Belly Leads Thursday Advance

• U.S. Treasuries climbed on Thursday, sending the 10-yr yield back below its 50-day moving average (4.316%) to within five basis points of its opening level from Wednesday. The trading day started with solid gains across the curve after a steady overnight advance in the futures market. The overnight gains took place alongside a mixed showing in global equities. In economic news, South Korea's GDP contracted for the first time since Q4 of 2020 in the reading for Q1 while Germany saw some slight improvement in business sentiment. There were no major tariff related surprises, but there was speculation that imports of auto parts could be exempt from sky-high tariffs and President Trump said that some discussions with China are taking place. Treasuries added to their starting gains after today's batch of data, which featured a larger-than-expected increase in Durable Orders for March (9.2%; Briefing.com consensus 1.5%) and a larger-than-expected increase in weekly jobless claims (to 222,000 from 216,000; Briefing.com consensus 220,000). Treasuries overtook their morning highs in the early afternoon, just before the U.S. Treasury completed this week's mediocre note auction slate with a soft sale of $44 bln in 7-yr notes. The market saw some light backtracking after the auction, but the complex returned to highs ahead of the close. Crude oil recovered some of yesterday's loss while the U.S. Dollar Index fell 0.5% to 99.37.
• Yield Check:
  • 2-yr: -7 bps to 3.79%
  • 3-yr: -9 bps to 3.79%
  • 5-yr: -9 bps to 3.93%
  • 10-yr: -8 bps to 4.31%
  • 30-yr: -7 bps to 4.77%

• News:
  • The Atlanta Fed's GDPNow forecast for Q1 GDP was lowered to -2.5% from -2.2% in the previous estimate.
  • Fed Governor (FOMC voter) Waller said that he would support rate cuts if there are tariff-related job losses.
  • President Trump may exempt automakers from paying some tariffs on imports of auto parts.
  • European Central Bank policymaker Rehn said that the ECB should not rule out larger interest rate cuts.
  • Japan's February Corporate Services Price Index was up 3.1% yr/yr (expected 3.0%; last 3.2%).
  • South Korea's Q1 GDP contracted 0.2% qtr/qtr (expected 0.1%; last 0.1%), falling 0.1% yr/yr (expected 0.2%; last 1.2%).
  • Germany's April ifo Business Climate Index hit 86.9 (expected 85.1; last 86.7). April Current Assessment hit 86.4 (expected 85.5; last 85.7) and Business Expectations hit 87.4 (expected 85.0; last 87.7).
  • U.K.'s April CBI Industrial Trends Orders rose to -26 from -29 (expected -36).
  • France's April Consumer Confidence remained at 92 (expected 91).
  • Spain's March PPI was up 4.9% yr/yr (last 6.6%).
• Today's Data:
  • Durable goods orders surged 9.2% month-over-month in March (Briefing.com consensus 1.5%), bolstered by a 139% increase in orders for nondefense aircraft and parts. Excluding transportation, durable goods orders were unchanged month-over-month (Briefing.com consensus 0.3%) following an unrevised 0.7% increase in February.
    • The key takeaway from the report is that there was a rebound in nondefense capital goods, excluding aircraft, which rose 0.1% following a 0.3% decline in February. This is indicative of a modest pickup in business spending, albeit before the reciprocal tariff upset on Liberation Day.
  • Initial jobless claims for the week ending April 19 increased by 6,000 to 222,000 (Briefing.com consensus 220,000). Continuing jobless claims for the week ending April 12 decreased by 37,000 to 1.841 million.
    • The key takeaway continues to be found in the leading indicator of initial jobless claims, which continue to run at low levels that are nowhere close to being associated with a recession.
  • Existing home sales decreased 5.9% month-over-month in March to a seasonally adjusted annual rate of 4.02 million (Briefing.com consensus 4.20 million) from an upwardly revised 4.27 million (from 4.26 million) in February. Sales were down 2.4% from the same period a year ago.
    • The key takeaway from the report is that existing home sales declined month-over-month in all regions, while the median selling price increased month-over-month in all regions, signaling the affordability constraints buyers are facing with higher prices and relatively higher mortgage rates.
  • Weekly natural gas inventories increased by 88 bcf after increasing by 16 bcf a week ago.
  • $44 bln 7-year Treasury note auction results (prior 12-auction average):
    • High yield: 4.123% (4.255%).
    • Bid-to-cover: 2.55 (2.58).
    • Indirect bid: 59.3% (70.0%).
    • Direct bid: 25.4% (19.0%).
• Commodities:
  • WTI crude: +1.0% to $62.81/bbl
  • Gold: +1.8% to $3351.10/ozt
  • Copper: +0.6% to $4.87/lb
• Currencies:
  • EUR/USD: +0.5% to 1.1382
  • GBP/USD: +0.5% to 1.3330
  • USD/CNH: UNCH at 7.2883
  • USD/JPY: -0.4% to 142.64
• The Day Ahead:
  • 10:00 ET: Final April University of Michigan Consumer Sentiment (Briefing.com consensus 48.5; prior 50.8)