Bond Market Commentary

Over in bond land, Treasury yields are lower before the opening bell Wednesday ahead of today’s Producer Price Index (PPI) for November, along with December’s existing home sales and November’s retail sales. As of 6:56 AM ET, the yield on the 10-year note is decreasing three basis points (0.03%) to 4.15%, while the 30-year bond yield is also falling three basis points (0.03%) to 4.81%. The yield on the two-year note, which is more sensitive to changes in monetary policy, is down two basis points (0.02%) to 3.51%. 

Treasury yields were mostly unchanged on Tuesday as the headline Consumer Price Index (CPI) rose as expected in December, with inflation rate coming in at 0.3% month-over-month (MOM) and 2.7% year-over-year (YOY). The core CPI (which excludes food and energy) came in cooler than anticipated, rising by 0.2% MOM and 2.6% YOY. The yield on the 10-year note was unchanged at 4.18%, while the 30-year bond yield rose one basis point (0.01%) to 4.84%. The yield on the two-year note was unchanged at 3.53%.

On the data front, the Mortgage Bankers Association’s gauge of mortgage applications increased by 28.5% for the week ending January 9 versus the prior week’s increase of 0.3%. The headline PPI for November is expected to show price increases of 0.2% MOM and 2.7% YOY, respectively. The core PPI, which excludes volatile components like food and energy, is also expected to show price increases of 0.2% MOM and 2.7% YOY, respectively. Retail sales are expected to have risen 0.5% MOM in November versus the prior month’s little change, while retail sales excluding autos are forecasted to have risen 0.4% MOM, similar to the prior month’s increase. The U.S. current account balance for the third quarter is expected to show a deficit of $238 billion, compared to the previous quarter’s deficit of $251.3 billion. Existing home sales are forecasted to have been at an annualized 4.22 million pace in December versus the prior month’s 4.13 million pace, corresponding to an increase of 2.2% MOM versus the prior month’s increase of 0.5%. Business inventories are expected to have increased by 0.1% MOM in October versus the prior month’s increase of 0.2%. The Department of Energy’s measure of crude oil inventories is expected to have decreased by 1.68 million barrels for the week ending January 9 versus the prior week’s decrease of 3.83 million barrels.

In the auction space, the U.S. Treasury is set to issue $69 billion in 17-week bills.

In the central bank space, Federal Reserve (Fed) Governor Stephen Miran, Atlanta Fed President Raphael Bostic, Philadelphia Fed President Anna Paulson, Minneapolis Fed President Neel Kashkari, and New York Fed President John Williams are scheduled to speak today.

The Bloomberg 30-day visible supply rose $47 million to $19.092 billion on Tuesday, above the 12-month average of $13.980 billion.

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