Bond Market Update

Midweek Bounce Sends Yields to Last Week's Lows

• U.S. Treasuries finished Wednesday with solid gains across the curve, though intraday action saw a steady retreat from opening highs. Treasuries opened the day with big gains that sent yields to three-week lows as global investor sentiment improved after President Trump agreed to a two-week ceasefire with Iran. The lasting power of the agreement remains in question, but the market took a more optimistic view of the conflict for the time being. The strong start in Treasuries took place alongside big gains in other sovereign debt and a sharp drop in the price of oil, which reached an intraday low of $91/bbl, down nearly $22/bbl from yesterday's closing level. Treasuries inched above their starting levels during the first couple minutes of action, but then reversed, spending the rest of the day in a slow retreat from highs. The market stayed near midday lows in immediate reaction to a weak $39 bln 10-yr note reopening but slipped to fresh lows during the last hour of trade, ending near the midpoint of today's range with yields near last week's lows. The final dip was a continuation of the steady pullback, but it also followed the release of March FOMC Minutes, which showed growing interest among policymakers in using two-sided language when discussing the expected rate path. Many participants observed that higher inflation could call for rate hikes while most officials were concerned that an extended war could result in job cuts that would warrant cuts to the fed funds rate range. Crude oil settled below $95/bbl while the U.S. Dollar Index fell 0.8% to 99.11.
• Yield Check:
  • 2-yr: -4 bps to 3.79%
  • 3-yr: -5 bps to 3.81%
  • 5-yr: -6 bps to 3.92%
  • 10-yr: -5 bps to 4.29%
  • 30-yr: -3 bps to 4.89%

• News:
  • Chis Phelan is the frontrunner to become Chair of the Council of Economic Advisers, according to Politico.
  • The Reserve Bank of New Zealand left its official cash rate at 2.25%, as expected, though RBNZ policymakers discussed a rate hike.
  • The Reserve Bank of India left its policy rate at 5.25%, as expected.
  • Japan's Finance Minister Katayama said that it is still uncertain if an extra budget will be needed.
  • Japan's February Average Cash Earnings rose 3.3% yr/yr (expected 2.7%; last 2.5%) and Overall Wage Income also rose 3.3% yr/yr (expected 2.7%; last 2.5%). February Current Account surplus reached JPY2.71 trln (expected surplus of JPY2.40 trln; last surplus of JPY3.13 trln). March Economy Watchers Current Index fell to 42.2 from 48.9 (expected 48.0).
  • South Korea's February Current Account surplus reached $23.19 bln (last surplus of $13.26 bln).
  • Hong Kong's March Manufacturing PMI hit 49.3 (last 53.3).
  • Eurozone's February Retail Sales were down 0.2% m/m, as expected (last 0.0%) but up 1.7% yr/yr (expected 1.6%; last 2.1%). February PPI was down 0.7% m/m (expected -0.6%: last 0.8%), falling 3.0% yr/yr, as expected (last -2.0%).
  • Germany's February Factory Orders rose 0.9% m/m (expected 3.0%; last -11.1%).
  • U.K.'s March Halifax House Price Index fell 0.5% m/m (expected 0.2%; last 0.3%), rising 0.8% yr/yr (expected 1.5%; last 1.2%).
  • France's February trade deficit reached EUR5.8 bln (expected deficit of EUR2.4 bln; last deficit of EUR2.0 bln).
  • Swiss March Unemployment Rate remained at 3.0%, as expected.
• Today's Data:
  • The weekly MBA Mortgage Index fell 0.8% to follow last week's 10.4% drop. The Refinance Index was down 2.8% while the Purchase Index rose 1.1%.
  • Weekly crude oil inventories increased by 3.08 million barrels after increasing by 5.45 million barrels a week ago.
  • $39 bln 10-year Treasury note auction results (prior 12-auction average):
    • High yield: 4.282% (4.232%).
    • Bid-to-cover: 2.43 (2.52).
    • Indirect bid: 65.3% (71.3%).
    • Direct bid: 23.9% (18.7%).
• Commodities:
  • WTI crude: -16.4% to $94.40/bbl
  • Gold: +1.9% to $4776.70/ozt
  • Copper: +4.0% to $5.78/lb
• Currencies:
  • EUR/USD: +0.5% to 1.1652
  • GBP/USD: +0.7% to 1.3390
  • USD/CNH: -0.3% to 6.8360
  • USD/JPY: -0.5% to 158.69
• The Day Ahead:
  • 8:30 ET: Weekly Initial Claims (Briefing.com consensus 215,000; prior 202,000), Continuing Claims (prior 1.841 mln), February Personal Income (Briefing.com consensus 0.5%; prior 0.4%), Personal Spending (Briefing.com consensus 0.6%; prior 0.4%), PCE Prices (Briefing.com consensus 0.4%; prior 0.3%), Core PCE Prices (Briefing.com consensus 0.3%; prior 0.4%), Q4 GDP -- third estimate (Briefing.com consensus 0.7%; prior 0.7%), and Q4 GDP Deflator -- third estimate (Briefing.com consensus 3.8%; prior 3.8%)
  • 10:00 ET: February Wholesale Inventories (Briefing.com consensus -0.2%; prior NA)
  • 10:30 ET: Weekly natural gas inventories (prior +36 bcf)
• Treasury Auctions:
  • 13:00 ET: $22 bln 30-yr Treasury bond reopening results