Bond Market Update

Monday Gains Reversed

• U.S. Treasuries gave back Monday's gains during a Tuesday reversal that also produced fresh 2026 intraday highs for yields across all tenors. Treasuries gave back a chunk of their gains at the cash start after a night that featured gains in global equities despite a renewed rise in the price of oil. Economic data released overnight showed unexpected manufacturing sector growth in most major European economies while readings from Asia were a bit weaker relative to expectations. There were also renewed concerns about private credit after it was reported that Apollo Global Management (APO) and Ares Management restricted redemptions from some funds. The market extended its starting losses during the initial hour, followed by a brief late morning bounce. However, the 10-yr note and shorter tenors slid to fresh lows after the U.S. Treasury started this week's note auction slate with a poor 2-yr note offering that tailed by nearly two basis points. That said, the final hour of action saw another bounce that lifted longer tenors back to levels seen around the open. Crude oil climbed back above $90/bbl while the U.S. Dollar Index rose 0.5% to 99.43, recovering the bulk of its loss from Monday.
• Yield Check:
  • 2-yr: +10 bps to 3.93%
  • 3-yr: +10 bps to 3.94%
  • 5-yr: +8 bps to 4.03%
  • 10-yr: +6 bps to 4.39%
  • 30-yr: +3 bps to 4.94%

• News:
  • Japan is planning to spend JPY800 bln on gasoline subsidies and may also intervene in the oil market through futures.
  • China's National Development Reform Commission said that fiscal and tax support will be implemented if crude oil prices remain high.
  • Russia tightened its fertilizer exports until April 21.
  • European Central Bank policymaker Vujcic acknowledged that the risk of stagflation has increased.
  • Japan's February National CPI was down 0.2% m/m (last -0.2%) but up 1.3% yr/yr (last 1.5%). February National Core CPI was up 1.6% yr/yr (expected 1.7%; last 2.0%). Flash March Manufacturing PMI hit 51.4 (expected 53.2; last 53.0) and flash Services PMI hit 52.8 (last 53.8).
  • South Korea's February PPI was up 0.6% m/m (last 0.7%), rising 2.4% yr/yr (last 1.9%).
  • Australia's flash March Manufacturing PMI hit 50.1 (last 51.0) and flash Services PMI hit 46.6 (last 52.8).
  • India's flash March Manufacturing PMI hit 53.8 (expected 56.8; last 56.9) and flash Services PMI hit 57.2 (expected 58.3; last 58.1).
  • Eurozone's flash March Manufacturing PMI hit 51.4 (expected 49.4; last 50.8) and flash Services PMI hit 50.1 (expected 51.1; last 51.9).
  • Germany's flash March Manufacturing PMI hit 51.7 (expected 49.6; last 50.9) and flash Services PMI hit 51.2 (expected 52.5; last 53.5).
  • U.K.'s flash March Manufacturing PMI hit 51.4 (expected 50.0; last 51.7) and flash Services PMI hit 51.2 (expected 52.8; last 53.9). March CBI Distributive Trades Survey fell to -52 from -43 (expected -40).
  • France's flash March Manufacturing PMI hit 50.2 (expected 49.4; last 50.1) and flash Services PMI hit 48.3 (expected 49.2; last 49.6).
• Today's Data:
  • Q4 productivity was revised down to 1.8% (Briefing.com consensus: 2.5%) from the preliminary estimate of 2.8%, while unit labor costs were revised up to 4.4% (Briefing.com consensus: 3.1%) from the preliminary estimate of 2.8%.
    • The key takeaway from the report is the dichotomy of lower productivity and higher unit labor costs, the latter of which will contribute to the Fed's reticence to cut rates soon (even though this is a dated report).
  • The S&P Global U.S. Manufacturing PMI hit 52.4 in the flash reading for March, up from 51.6 in February.
  • The S&P Global U.S. Services PMI hit 51.1 in the flash reading for March, down from 51.7 in February.
  • $69 bln 2-year Treasury note auction results (prior 12-auction average):
    • High yield: 3.936% (3.682%).
    • Bid-to-cover: 2.44 (2.61).
    • Indirect bid: 59.4% (59.3%).
    • Direct bid: 16.5% (29.7%).
• Commodities:
  • WTI crude: +4.7% to $92.29/bbl
  • Gold: -0.1% to $4401.00/ozt
  • Copper: -0.2% to $5.46/lb
• Currencies:
  • EUR/USD: -0.2% to 1.1586
  • GBP/USD: -0.3% to 1.3386
  • USD/CNH: +0.2% to 6.8990
  • USD/JPY: +0.4% to 158.94
• The Day Ahead:
  • 7:00 ET: Weekly MBA Mortgage Index (prior -10.9%)
  • 8:30 ET: Q4 Current Account Balance (prior -$226.4 bln) and February Import/Export prices
  • 10:30 ET: Weekly crude oil inventories (prior +6.16 mln)
• Treasury Auctions:
  • 13:00 ET: $70 bln 5-yr Treasury note auction results