Bond Market Update

Mixed Up After Easter Break

• U.S. Treasuries began the week in mixed fashion with relative strength in longer tenors allowing the long bond to reclaim its loss from Friday's abbreviated session while the short end underperformed, extending Friday's losses. Those losses were incurred in reaction to the Employment Situation report for March, which beat headline expectations by a wide margin, masking some softness on the earnings side. The headline-grabbing elements showed the addition of 178,000 nonfarm payrolls and a dip in the Unemployment Rate to 4.3% from 4.4%. On the negative side, a deceleration in average hourly earnings growth to 3.5% from 3.8% year-over-year and a dip in the average workweek to 34.2 from 34.3 hours exerted some, albeit mild, pressure on average weekly earnings (-0.1%). Friday's abbreviated session, which took place despite Wall Street's closure, was followed by a weekend that did not feature signs of deescalation in the Iran conflict. On the contrary, President Trump threatened to attack Iran's bridges and energy infrastructure if negotiations don't bear fruit by tomorrow night. Crude oil briefly overtook $115/bbl on Sunday evening after the threat was made, but settled with just a portion of that advance, rising despite news that OPEC+ agreed to increase its daily output by 206,000 barrels in May. As for Treasuries, they opened on lows, rallying back toward Thursday's closing levels in early action. The rebound was sustained after the ISM Services report for March (54.0%; Briefing.com consensus 54.9%) missed expectations with its employment component contrasting starkly with the newfound growth in March nonfarm payrolls. Treasuries edged to fresh highs after President Trump's afternoon press conference was essentially a rerun of threats made over the weekend, settling near their best levels. Crude oil ended the day just north of $112/bbl while the U.S. Dollar Index dipped 0.1% to 99.99.
• Yield Check:
  • 2-yr: +2 bps to 3.85% (+5 bps from Thursday's settlement)
  • 3-yr: +1 bp to 3.87% (+4 bps from Thursday's settlement)
  • 5-yr: -1 bp to 3.98% (+3 bps from Thursday's settlement)
  • 10-yr: -2 bps to 4.33% (+2 bps from Thursday's settlement)
  • 30-yr: -3 bps to 4.89% (UNCH from Thursday's settlement)

• News:
  • The U.S. Senate will hold a confirmation hearing for Fed Chairman nominee Warsh on April 16.
  • Japan's Prime Minister Takaichi will travel to Australia to secure Japan's rare earth supply chain and discuss cooperation regarding the Strait of Hormuz.
  • China's government reported that its consumer goods trade-in program generated revenue of CNY433 bln in Q1.
  • The Bank of England is split on a best approach to the oil-related inflationary spike, according to FT.
  • The Bank of Italy trimmed its 2026 growth forecast to 0.5% from 0.6% while the outlook for 2027 was reduced to 0.5% from 0.8%.
  • India purchased its first shipment of crude oil from Iran since 2019.
  • India's March Services PMI hit 57.5 (expected 57.2; last 57.2).
  • Singapore's February Retail Sales fell 4.1% m/m (last 6.0%), rising 8.3% yr/yr (last -0.5%).
  • Spain's March Unemployment decreased by 22,900 (expected 10,300; last 3,600).
• Today's Data:
  • The ISM Services PMI hit 54.0% in March (Briefing.com consensus 54.9%), down from 56.1% in February. The dividing line between expansion and contraction is 50.0%, so the March reading reflects services sector activity growing at a slower pace than the prior month, when activity expanded at a pace not seen since July 2022.
    • The key takeaway from the report is that the services sector remained in expansion, but the Employment Index returned to contraction while the Prices Index saw its biggest one-month increase in over 13 years. This combination will present a headwind to growth, especially if it persists in the coming months.
  • [Reported on Friday] March nonfarm payrolls increased by 178,000 (Briefing.com consensus 51,000). The 3-month average for total nonfarm payrolls increased to 68,333 from 6,000. February nonfarm payrolls revised to -133,000 from -92,000. January nonfarm payrolls revised to 160,000 from 126,000.
    • March private sector payrolls jumped by 178,000 (Briefing.com consensus 51,000). February private sector payrolls revised to -129,000 from -86,000. January private sector payrolls revised to 180,000 from 146,000.
    • March unemployment rate was 4.3% (Briefing.com consensus 4.4%) versus 4.4% in February. Persons unemployed for 27 weeks or more accounted for 25.4% of the unemployed versus 25.3% in February. The U6 unemployment rate, which accounts for unemployed and underemployed workers, increased to 8.0% from 7.9% in February.
    • March average hourly earnings were up 0.2% (Briefing.com consensus 0.4%) versus a 0.4% increase in February. Over the last 12 months, average hourly earnings have risen 3.5%, versus 3.8% for the 12 months ending in February.
    • The average workweek in March was 34.2 hours (Briefing.com consensus 34.3) versus 34.3 hours in February. The manufacturing workweek was unchanged at 40.2 hours. Factory overtime was unchanged at 3.0 hours.
    • The labor force participation rate decreased to 61.9% from 62.0% in February and the employment-population ratio decreased to 59.2% from 59.3% in February.
  • [Reported on Friday] The S&P Global U.S. Services PMI hit 49.8 in the final reading for March, down from 51.1 in the preliminary reading and 51.7 in the final February reading.
• Commodities:
  • WTI crude: +0.7% to $112.25/bbl
  • Gold: +0.1% to $4683.20/ozt
  • Copper: +0.4% to $5.60/lb
• Currencies:
  • EUR/USD: +0.2% to 1.1544
  • GBP/USD: +0.4% to 1.3236
  • USD/CNH: -0.1% to 6.8766
  • USD/JPY: UNCH at 159.69
• The Day Ahead:
  • 8:30 ET: February Durable Orders (Briefing.com consensus 0.5%; prior 0.0%) and Durable Orders ex-transport (Briefing.com consensus 0.5%; prior 0.4%)
  • 15:00 ET: February Consumer Credit (Briefing.com consensus $7.0 bln; prior $8.1 bln)
• Treasury Auctions:
  • 13:00 ET: $58 bln 3-yr Treasury note auction results