Bond Market Update

Treasuries Bounce Despite Weak Auction

• U.S. Treasuries enjoyed a solid midweek bounce that pressured yields from their highest levels of 2026. Treasuries recorded the bulk of their gains at the open after a night that saw growing hopes for a resolution to the Iran conflict. There were reports of several Asia-bound ships transiting the Strait of Hormuz, alleviating worries about supply shortages in a region heavily dependent on imports from the Middle East. Treasuries added to their starting gains in mid-morning trade, staying just below their highs into the close even though today's $70 bln 5-yr note auction met weak demand, making for the second disappointing auction in a row ahead of tomorrow's $44 bln 7-yr note offering. The auction was followed by some light backtracking in 5s and shorter tenors, but the entire complex finished not far from session highs. Crude oil fell below $86.50/bbl overnight, but climbed back above $90/bbl as the day went on. The U.S. Dollar Index rose 0.1% to 99.57.
• Yield Check:
  • 2-yr: -5 bps to 3.88%
  • 3-yr: -6 bps to 3.88%
  • 5-yr: -6 bps to 3.97%
  • 10-yr: -6 bps to 4.33%
  • 30-yr: -4 bps to 4.90%

• News:
  • President Trump's meeting with China's President Xi has been rescheduled from early April to mid-May, according to CNBC.
  • There was some speculation that China's sovereign wealth fund will be allocating new money to U.S.-based managers like Blackstone and TPG.
  • Japan's Diplomatic Blue Book for 2026 downgraded the view of relations with China to strategic and mutually beneficial from "one of its most important."
  • European Central Bank President Lagarde said that the bank will not act before it has sufficient information.
  • European Central Bank policymaker Lane said that the market is expecting two big inflation readings in March and April before normalizing in the following months.
  • South Korea's March Consumer Confidence fell to 107.0 from 112.1.
  • Australia's February Monthly CPI Indicator slowed to 3.7% from 3.8% (expected 3.8%).
  • Germany's March ifo Business Climate Index fell to 86.4 from 88.4 (expected 86.2). March Current Assessment remained at 86.7 (expected 86.0) and Business Expectations fell to 86.0 from 90.2, as expected.
  • U.K.'s February CPI was up 0.4% m/m, as expected (last -0.5%), rising 3.0% yr/yr, as expected (last 3.0%). February Core CPI was up 0.6% m/m (expected 0.5%; last -0.6%), rising 3.2% yr/yr (expected 3.1%; last 3.1%). February Input PPI was up 0.8% m/m (expected 0.5%; last 0.3%) and Output PPI was down 0.5% m/m (expected 0.3%; last 0.0%). February House Price Index was up 1.3% yr/yr (expected 1.7%; last 1.9%).
  • Spain's February PPI fell 7.0% yr/yr (last -2.9%).
  • Swiss March ZEW Expectations fell to -35.0 from 9.8.
• Today's Data:
  • The Current Account deficit narrowed to $190.7 billion in Q4 (Briefing.com consensus -$242.3 bln) from a revised deficit of $239.1 bln (from -$226.4 bln) in Q3.
  • Import prices were up 1.3% in February after increasing a revised 0.6% (from 0.2%) in January. Excluding oil, import prices were up 1.1% after increasing a revised 0.8% (from 0.5%) in January. Export prices were up 1.5% in February after rising 0.6% in January while export prices, excluding agriculture rose 1.7% after rising 0.7% in January.
  • The weekly MBA Mortgage Index fell 10.5% to follow last week's 10.9% drop. The Refinance Index fell 14.6% while the Purchase Index was down 5.4%.
  • Weekly crude oil inventories increased by 6.93 mln barrels after increasing by 6.16 mln barrels a week ago.
  • $70 bln 5-year Treasury note auction results (prior 12-auction average):
    • High yield: 3.980% (3.799%).
    • Bid-to-cover: 2.29 (2.39).
    • Indirect bid: 61.9% (64.6%).
    • Direct bid: 22.5% (24.8%).
• Commodities:
  • WTI crude: -2.1% to $90.33/bbl
  • Gold: +3.4% to $4551.20/ozt
  • Copper: +1.8% to $5.56/lb
• Currencies:
  • EUR/USD: -0.4% to 1.1562
  • GBP/USD: -0.4% to 1.3361
  • USD/CNH: +0.2% to 6.9046
  • USD/JPY: +0.5% to 159.48
• The Day Ahead:
  • 8:30 ET: Weekly Initial Claims (Briefing.com consensus 210,000; prior 205,000) and Continuing Claims (prior 1.857 mln)
  • 10:30 ET: Weekly natural gas inventories (prior +35 bcf)
• Treasury Auctions:
  • 13:00 ET: $44 bln 7-yr Treasury note auction results