Bond Market Update

Short End Overcomes Lower Start as Iran Deadline Nears

• U.S. Treasuries had a mixed showing on Tuesday, as shorter tenors recovered from a lower start while longer tenors could not stay out of the red. The trading day started with losses in most tenors and weakness in other sovereign debt as investors remained focused on the price of oil, which climbed back above $115/bbl in morning trade, making a brief push toward its March high (119.48). The market attempted to put together an early bounce after the Durable Orders report for February (-1.4%; Briefing.com consensus 0.5%) showed an unexpected headline decrease that masked solid growth in capital goods spending. Treasuries faced renewed selling in mid-morning action, sliding alongside a weak open on Wall Street. Both markets reached lows around 11:00 ET, battling back from those levels over the next few hours while oil retreated from its highest level of the day. The moves followed some speculation that an off-ramp could appear ahead of tonight's 20:00 ET deadline that President Trump imposed on talks with Iran. The bounce off morning lows found some midday resistance, but a strong $58 bln 3-yr note auction gave the complex an afternoon boost that helped 5s and shorter tenors finish in the green. Crude oil approached $113/bbl while the U.S. Dollar Index fell 0.2% to 99.83.
• Yield Check:
  • 2-yr: -2 bps to 3.83%
  • 3-yr: -1 bp to 3.86%
  • 5-yr: -1 bp to 3.98%
  • 10-yr: +1 bp to 4.34%
  • 30-yr: +3 bps to 4.92%

• News:
  • The Atlanta Fed's GDPNow forecast for Q1 GDP was lowered to 1.3% from 1.6% in the latest estimate.
  • The Reserve Bank of New Zealand and Reserve Bank of India will opine tomorrow, but policy changes are not expected.
  • Japan sold 30-yr JGBs to weak demand despite a downsized auction.
  • European Central Bank policymaker Wunsch said that a lasting crisis could invite a series of rate hikes, and that he is open to a hike later this month while policymaker Radev said that it is too early to tell if an April rate hike is needed.
  • China's March FX Reserves reached $3.342 trln (expected $3.400 trln; last $3.428 trln).
  • Japan's February Leading Index rose to 112.4 from 112.1, as expected, and Coincident Indicator was down 1.6% m/m (last 3.4%). February Household Spending rose 1.5% m/m (expected 2.6%; last -2.5%), falling 1.8% yr/yr (expected -0.8%; last -1.0%).
  • Australia's March Services PMI hit 46.3 (expected 46.6; last 52.8). March MI Inflation Gauge was up 1.3% m/m (last -0.2%) and March ANZ Job Advertisements fell 3.1% m/m (last 3.2%).
  • Eurozone's March Services PMI hit 50.2 (expected 50.1; last 51.9). April Sentix Investor Confidence fell to -19.2 from -3.1 (expected -7.5).
  • Germany's March Services PMI hit 50.9 (expected 51.2; last 53.5).
  • U.K.'s March Services PMI hit 50.5 (expected 51.2; last 53.9).
  • France's March Services PMI hit 48.8 (expected 48.3; last 49.6).
  • Italy's March Services PMI hit 48.8 (expected 51.0; last 52.3).
  • Spain's March Services PMI hit 53.3 (expected 50.7; last 51.9).
  • Swiss March Foreign Reserves reached $721.2 bln (last $710.1 bln).
• Today's Data:
  • Durable goods orders decreased 1.4% month-over-month in February (Briefing.com consensus: 0.5%) following a downwardly revised 0.5% decline (from 0.0%) in January. Excluding transportation, durable goods orders increased 0.8% (Briefing.com consensus: 0.5%) following a downwardly revised 0.3% increase (from 0.4%) in January.
    • The key takeaway from the report is that the weakness in February was concentrated largely in transportation and capital goods orders. Otherwise, order activity was decent, highlighted by a 0.6% increase in new orders for nondefense capital goods, excluding aircraft—a proxy for business spending.
  • Consumer credit increased by $9.5 billion in February (Briefing.com consensus $7.0 billion) after increasing by a revised $7.7 billion (from $8.1 billion) in January. Nonrevolving credit increased by $8.8 billion while revolving credit increased by $700 million.
  • $58 bln 3-year Treasury note auction results (prior 12-auction average):
    • High yield: 3.897% (3.675%).
    • Bid-to-cover: 2.68 (2.61).
    • Indirect bid: 74.8% (63.0%).
    • Direct bid: 11.9% (23.1%).
• Commodities:
  • WTI crude: +0.5% to $112.85/bbl
  • Gold: +0.1% to $4686.00/ozt
  • Copper: -0.7 to $5.56/lb
• Currencies:
  • EUR/USD: +0.3% to 1.1576
  • GBP/USD: +0.2% to 1.3258
  • USD/CNH: -0.2% to 6.8629
  • USD/JPY: +0.1% to 159.84
• The Day Ahead:
  • 7:00 ET: Weekly MBA Mortgage Index (prior -10.4%)
  • 10:30 ET: Weekly crude oil inventories (prior +5.45 mln)
  • 14:00 ET: March FOMC Minutes
• Treasury Auctions:
  • 13:00 ET: $39 bln 10-yr Treasury note reopening results