Bond Market Update

Monday Bounce Extended

• U.S. Treasuries had a solid outing on Tuesday, making for a continuation of an upbeat start to the week amid a growing sense that the Iran conflict will conclude soon. The trading day started with slight gains across the curve after a night that was quiet on the geopolitical front. The market received some noteworthy data with China reporting a March trade surplus ($51.13 bln; expected $107.20 bln; last $213.62 bln) that was much smaller than expected due to strong import growth and weak export growth with exports to the U.S. ($16.8 bln) at their lowest level since late 2003. Treasuries held their ground in immediate reaction to the March PPI report, which was much better than feared, as PPI increased 0.5% month-over-month (Briefing.com consensus 1.2%) while core PPI was up just 0.1% (Briefing.com consensus 0.4%). Treasuries advanced to fresh highs in the late morning, continuing their upward push into the afternoon with help from President Trump's acknowledgement that another round of talks with Iran could be just days away. The advance pressured yields to their lowest closing levels in nearly a month while oil settled at a three-week low. The U.S. Dollar Index fell 0.2% to 98.13, reaching its lowest level in six weeks.
• Yield Check:
  • 2-yr: -3 bps to 3.75%
  • 3-yr: -4 bps to 3.76%
  • 5-yr: -5 bps to 3.87%
  • 10-yr: -4 bps to 4.26%
  • 30-yr: -3 bps to 4.87%

• News:
  • U.S. Central Command said that no ships have passed through the U.S. blockade of Iran's ports.
  • The International Monetary Fund warned that a prolonged war in the Middle East could result in a global recession and urged members to be prepared for a liquidity squeeze and potential market dysfunction.
  • The International Energy Agency released its Oil Market report for April, projecting a 1.5 million barrel per day supply drop and an 80,000-barrel demand decrease in 2026.
  • The market is no longer expecting the Bank of Japan to announce a rate hike on April 30 with the next hike forecast for June.
  • The Bank of France expects domestic Q1 GDP growth of 0.3%, according to its monthly economic survey.
  • European Central Bank policymaker Rehn said that rate decisions are not locked in ahead of time and that the inflationary impact of the Iran war remains unclear.
  • China's March trade surplus reached $51.13 bln (expected $107.20 bln; last $213.62 bln) as imports grew 27.8% yr/yr (expected 11.1%; last 19.8%) and exports rose 2.5% yr/yr (expected 8.3%; last 21.8%).
  • Japan's February Industrial Production was down 2.0% m/m (expected -2.1%; last 4.3%) and Capacity Utilization dipped 0.1% m/m (last 2.9%).
  • Singapore's Q1 GDP contracted 1.3% qtr/qtr (expected -0.5%; last 1.3%) but expanded 4.6% yr/yr (expected 5.4%; last 5.7%).
  • Australia's March NAB Business Survey remained at 6 and NAB Business Confidence fell to -29 from 0. April Westpac Consumer Sentiment was down 12.5% (last 1.2%).
  • New Zealand's February Visitor Arrivals rose 1.7% m/m (last 1.1%).
  • Germany's March WPI was up 2.7% m/m (expected 0.4%; last 0.6%), rising 4.1% yr/yr (last 1.2%).
  • Spain's March CPI was up 1.2% m/m (expected 1.0%; last 0.4%), rising 3.4% yr/yr (expected 3.3%; last 2.3%). March Core CPI was up 2.9% yr/yr (expected 2.7%; last 2.7%).
• Today's Data:
  • The Producer Price Index for final demand increased 0.5% month-over-month in March (Briefing.com consensus: 1.2%) following a downwardly revised 0.5% increase (from 0.7%) in February. The index for final demand, less foods and energy, rose just 0.1% (Briefing.com consensus: 0.4%) following a downwardly revised 0.3% increase (from 0.5%) in February. These changes left the index for final demand up 4.0% year-over-year, versus 3.4% in February, and the index for final demand, less foods and energy, up 3.8% year-over-year, unchanged from February.
    • The key takeaway from the report is that the inflation seen at the wholesale level in March was driven largely by energy prices and gasoline prices (+15.7%) in particular. The index for final demand services was unchanged, so the market is giving itself some latitude to look through the energy price shock as something that is temporary.
  • The NFIB Small Business Optimism Index fell to 95.8 in March (Briefing.com consensus 98.0) from 98.8 in February.
• Commodities:
  • WTI crude: -7.7% to $91.31/bbl
  • Gold: +1.9% to $4854.90/ozt
  • Copper: +1.5% to $6.08/lb
• Currencies:
  • EUR/USD: +0.3% to 1.1795
  • GBP/USD: +0.5% to 1.3564
  • USD/CNH: -0.1% to 6.8107
  • USD/JPY: -0.3% to 158.81
• The Day Ahead:
  • 7:00 ET: Weekly MBA Mortgage Index (prior -0.8%)
  • 8:30 ET: April Empire State Manufacturing (Briefing.com consensus 0.0; prior -0.2), March Import Prices (prior 1.3%), Import Prices ex-oil (prior 1.1%), Export Prices (prior 1.5%), and Export Prices ex-ag (prior 1.7%)
  • 10:00 ET: April NAHB Housing Market Index (Briefing.com consensus 38; prior 38)
  • 10:30 ET: Weekly crude oil inventories (prior +3.08 mln)
  • 14:00 ET: April Beige Book
  • 16:00 ET: February Net Long-Term TIC Flows (prior $15.5 bln)