Bond Market Update

Treasuries Steady Despite Wall Street Volatility

• U.S. Treasuries finished Tuesday on a flat note after recovering from a slightly lower start. The market started the day under some mild pressure after a night, which featured a 10-yr JGB auction in Japan that was a bit weak, though not terrible, and a rate hike from the Reserve Bank of Australia with indications of more tightening later this year. The market was scheduled to receive the Job Openings and Labor Turnover Survey for December (prior 7.146 mln) this morning, but that release got delayed by the brief government shutdown, which will end after the House narrowly passed a funding bill this afternoon. The lower start lifted yields on longer tenors back to their January highs, but the market found support before breaching those levels, inching off lows alongside a weak start in equities. Stocks continued struggling into the afternoon, which helped Treasuries turn slightly positive during the final couple hours of action, though even with that move, today's action was confined to a pretty slim range. Precious metals recovered their losses from Monday after increased margin requirements were implemented by the CME last evening. The market will receive a handful of economic reports tomorrow, including the ISM Non-Manufacturing Index (Briefing.com consensus 53.7%; prior 54.4%) for January, and the U.S. Treasury will release its latest quarterly refunding statement, though surprise potential is limited since the Treasury announced last evening that borrowing in Q1 will be just $3 bln below the initial projection. Crude oil bounced off its 200-day moving average (62.32) while the U.S. Dollar Index fell 0.2% to 97.46.
• Yield Check:
  • 2-yr: UNCH at 3.57%
  • 3-yr: +1 bp to 3.65%
  • 5-yr: UNCH at 3.84%
  • 10-yr: UNCH at 4.27%
  • 30-yr: UNCH at 4.91%

• News:
  • The Reserve Bank of Australia raised its cash rate by 25 basis points to 3.85%, as expected. The central bank hinted at the possibility of more hikes ahead due to an upward revision to the inflation outlook, causing the market to price in two more hikes for the remainder of 2026.
  • Shanghai has set its growth target for this year at 5.0%, down from 5.4% in 2025.
  • The European Central Bank's lending survey for Q4 revealed unexpected tightening in conditions that is now expected to continue into Q1.
  • Standard & Poor's affirmed UniCredit's A- rating and upgraded its outlook to Positive from Stable.
  • The French budget for 2026 passed into law without a vote in parliament. Finance Minister Lescure said that the budget deficit will decrease to 5.0% from 5.4%.
  • Japan's January Monetary Base was down 9.5% yr/yr (expected -10.3%; last -9.8%).
  • South Korea's January CPI was up 0.4% m/m, as expected (last 0.3%), rising 2.0% yr/yr (expected 2.1%; last 2.3%).
  • Hong Kong's December Retail Sales rose 6.6% yr/yr (last 6.5%).
  • Australia's December Building Approvals fell 14.9% m/m (expected -6.2%; last 13.1%), rising 0.4% yr/yr (last 19.4%). December Private House Approvals rose 0.4% m/m (last 0.8%).
  • New Zealand's December Building Consents fell 4.6% m/m (last 2.7%).
  • France's January CPI was down 0.3% m/m (expected -0.1%; last 0.1%) but up 0.3% yr/yr (expected 0.6%; last 0.8%). December government budget deficit reached EUR124.7 bln (last deficit of EUR155.4 bln).
  • Spain's January Unemployment increased by 30,400 (expected 13,400; last -16,300).
• Commodities:
  • WTI crude: +1.6% to $63.16/bbl
  • Gold: +6.0% to $4931.40/ozt
  • Copper: +4.6% to $6.09/lb
• Currencies:
  • EUR/USD: +0.2% to 1.1813
  • GBP/USD: +0.2% to 1.3688
  • USD/CNH: -0.1% to 6.9358
  • USD/JPY: +0.1% to 155.77
• The Day Ahead:
  • 7:00 ET: Weekly MBA Mortgage Index (prior -8.5%)
  • 8:15 ET: January ADP Employment Change (Briefing.com consensus 43,000; prior 41,000)
  • 8:30 ET: Quarterly Refunding Statement from the U.S. Treasury
  • 9:45 ET: Final January S&P Global U.S. Services PMI (prior 52.5)
  • 10:00 ET: January ISM Non-Manufacturing Index (Briefing.com consensus 53.7%; prior 54.4%)
  • 10:30 ET: Weekly crude oil inventories (prior -2.30 mln)