Bond Market Update

Quiet Start to April

• U.S. Treasuries endured some volatility to begin April, though the movement unfolded inside a narrow range, leaving the market with slim losses after three days of gains in most tenors. The market appeared on track for a continuation of its bounce off March lows after an overnight advance in Treasury futures and gains in other sovereign debt. Overall investor sentiment improved notably, resulting in gains in most global equity markets, as participants remained optimistic that the Iran conflict will end soon. President Trump said that the campaign could end in a couple weeks and he is likely to repeat that during tonight's televised address at 21:00 ET. Treasuries gave back their starting gains quickly, reaching lows shortly after today's economic data showed strong ADP Employment growth for March (62,000; Briefing.com consensus 42,000) and above-consensus February Retail Sales (0.6%; Briefing.com consensus 0.5%). Later in the day, the market received the ISM Manufacturing Index for March (52.7%; Briefing.com consensus 52.3%), which showed accelerating activity despite last month's surge in the price of oil. Treasuries made a run at their opening levels in mid-morning trade, but they found some resistance, spending the afternoon just below their flat lines. Crude oil slipped to $100/bbl while the U.S. Dollar Index fell 0.4% to 99.59.
• Yield Check:
  • 2-yr: UNCH at 3.80%
  • 3-yr: +1 bp to 3.83%
  • 5-yr: +1 bp to 3.96%
  • 10-yr: +1 bp to 4.32%
  • 30-yr: +1 bp to 4.90%

• News:
  • The Atlanta Fed's GDPNow forecast for Q1 GDP was lowered to 1.9% from 2.0%.
  • The Bank of Japan will reduce its bond purchases by about 8% in Q2, which was expected.
  • South Korean officials said that there will be no disruptions to the supply of helium and ethylene gas through the first half of the year.
  • European Central Bank policymaker Rehn said that the latest inflation reading was not a surprise and that a rate hike should not be seen as certain.
  • Germany's economy minister urged a return to nuclear power.
  • China's March RatingDog Manufacturing PMI hit 50.8 (expected 51.6; last 52.1).
  • Japan's March Manufacturing PMI hit 51.6, as expected (last 51.4). Q1 Tankan Large Manufacturers Index rose to 17 from 16 (expected 16) and Large Non-Manufacturers Index rose to 36 from 34 (expected 33). Q1 All Big Industry Capex increased 3.3% (last 12.6%) and All Small Industry Capex decreased 8.1% (last 0.1%).
  • South Korea's flash March trade surplus reached $25.74 bln (expected surplus of $21.20 bln; last surplus of $15.38 bln) as imports grew 13.2% yr/yr (expected 18.0%; last 7.5%) and exports jumped 48.3% yr/yr (expected 44.9%; last 28.7%). March Manufacturing PMI hit 52.6 (last 51.1).
  • Hong Kong's February Retail Sales jumped 19.3% yr/yr (last 5.5%).
  • Singapore's Q1 URA Property Index was up 0.3% qtr/qtr (last 0.6%).
  • Australia's March Manufacturing PMI hit 49.8 (expected 50.1; last 51.0). Flash February Building Approvals rose 29.7% m/m (expected 5.8%; last -7.2%), increasing 14.0% yr/yr (last -15.7%). February Private House Approvals were up 0.2% m/m (last 1.7%).
  • New Zealand's February Building Consents rose 2.7% m/m (last 2.0%).
  • Eurozone's March Manufacturing PMI hit 51.6 (expected 51.4; last 50.8) and February Unemployment Rate rose to 6.2% from 6.1% (expected 6.1%).
  • Germany's March Manufacturing PMI hit 52.2 (expected 51.7; last 50.9).
  • U.K.'s March Manufacturing PMI hit 51.0 (expected 51.4; last 51.7).
  • Italy's March Manufacturing PMI hit 51.3 (expected 50.9; last 50.6). February Unemployment Rate rose to 5.3% from 5.2% (expected 5.2%).
  • France's March Manufacturing PMI hit 50.0 (expected 50.2; last 50.2).
  • Spain's March Manufacturing PMI hit 48.7 (expected 50.5; last 50.0).
  • Swiss February Retail Sales rose 0.9% yr/yr (expected 1.5%; last -0.6%). March Manufacturing PMI hit 53.3 (expected 50.5; last 50.0).
• Today's Data:
  • Total retail sales jumped 0.6% month-over-month in February (Briefing.com consensus: 0.5%) following an upwardly revised 0.1% decline (from -0.2%) in January. Excluding autos, retail sales rose 0.5% (Briefing.com consensus: 0.3%) after being unchanged in January.
    • The key takeaway from the report is that it revealed solid spending activity across most kinds of retail businesses. The strength of the report is apt to be diluted, however, by the recognition that it preceded the hefty increase in gasoline prices and the sharp decline in stock prices in March that are expected to keep discretionary spending in check.
  • The ISM Manufacturing Index checked in at 52.7% for March (Briefing.com consensus: 52.3%), up from 52.4% in February. The dividing line between expansion and contraction is 50.0%, so the March figure suggests there was a slight acceleration in manufacturing activity versus the prior month.
    • The key takeaway from the report is that it conveys an ongoing expansion in manufacturing activity coupled with an ongoing increase in prices for raw materials that works against the notion of the Fed cutting rates soon.
  • According to ADP, private sector employment increased by 62,000 jobs in March (Briefing.com consensus: 42,000) following an upwardly revised 66,000 (from 63,000) in February. That was split fairly evenly between the goods-producing and service-providing sectors; however, it was driven entirely by small businesses, which added 85,000 jobs.
  • The S&P Global U.S. Manufacturing PMI hit 52.3 in the final reading for March, down from 52.3 in the preliminary reading but up from February's final reading of 51.6.
  • Business Inventories decreased by 0.1% in January after a revised unchanged reading (from +0.1%) in December.
  • The weekly MBA Mortgage Index fell 10.4% to follow last week's 10.5% drop. The Purchase Index was down 2.6% while the Refinance Index fell 17.3%.
  • Weekly crude oil inventories increased by 5.45 mln barrels after increasing by 6.93 mln barrels a week ago.
• Commodities:
  • WTI crude: -1.0% to $100.14/bbl
  • Gold: +2.8% to $4812.40/ozt
  • Copper: +0.7% to $5.65/lb
• Currencies:
  • EUR/USD: +0.2% to 1.1579
  • GBP/USD: +0.6% to 1.3299
  • USD/CNH: -0.1% to 6.8796
  • USD/JPY: +0.1% to 158.86
• The Day Ahead:
  • 8:30 ET: Weekly Initial Claims (Briefing.com consensus 215,000; prior 210,000), Continuing Claims (prior 1.819 mln), and February Trade Balance (Briefing.com consensus -$55.8 bln; prior -$54.5 bln)
  • 10:30 ET: Weekly natural gas inventories (prior -54 bcf)