EXECUTIVE SUMMARY
US TSYS: Cash Curve Returns On A Bull Flattening Note With Short End Static
The Treasury curve bull flattened Tuesday in the return to cash trade after Monday's holiday, with Trump administration policy remaining the focus after the presidential inauguration.
- TY futures had rallied Monday (amid the cash close), with gains peaking in overnight trade Tuesday, as markets caught up to varying Trump tariff headlines (President Trump clarified Monday his administration may impost 25% tariffs on Mexico and Canada at the beginning of Feb).
- Data was limited: the January Philly Fed non-manufacturing survey was soft, and coming out alongside a below-expected Canadian CPI figure, it helped a nascent morning bid for Treasuries, but ultimately pulled back thereafter with futures closing fairly flat to Monday's early close.
- With 2025 Fed rate cut expectations fairly static (and the FOMC is in its pre-January meeting blackout period), the Treasury short end remained anchored.
- A lack of movement in the 2Y segment means the Treasury curve is as flat as it's been this year across key segments: 2s10s are -5.2bp at 28.6bp (entered 2025 at 32.5bp, January high of 42.9bp); 2s5s -3.2bp at 11.2bp (opened 2025 at 13.5bp).
- Wednesday's data calendar remains light, with MBA mortgage data and the December Leading Index - more focus will be on $13B 20Y Bond reopening auction, as well as a Fox interview with Pres Trump airing after Wednesday's cash close.
- Latest cash levels: The 2-Yr yield is down 0.9bps at 4.2741%, 5-Yr is down 4.1bps at 4.3904%, 10-Yr is down 6.3bps at 4.5642%, and 30-Yr is down 6.4bps at 4.7927%. The Mar 25 T-Note future is up 7.5/32 at 108-25, having traded in a range of 108-085. to 109-04.
NEWS
US (MNI INTERVIEW): A sustained rise in Treasury yields poses the biggest risk to the U.S. labor market, which has cooled gradually over the past year but should otherwise continue performing well in 2025, Yongseok Shin, economist at Washington University in St. Louis and research fellow at the St. Louis Fed, told MNI.
US (MNI BRIEF): President Donald Trump’s pick for Treasury secretary, Scott Bessent, won bipartisan support Tuesday as his nomination cleared a key Senate committee. The Senate Finance Committee voted 16-11 to advance Bessent’s nomination, clearing the way for a full Senate vote in the coming days. Two Democrats, Sens. Mark Warner and Maggie Hassan, joined with the committee’s Republicans in supporting Bessent for the top economic job in Trump’s Cabinet.
US (CBS NEWS): President Trump is set to announce billions of dollars in private sector investment to build artificial intelligence infrastructure in the United States, CBS News has learned. OpenAI, Softbank and Oracle are planning a joint venture called Stargate, according to multiple people familiar with the deal. SoftBank CEO Masayoshi Son is expected at the White House Tuesday afternoon, along with Sam Altman of OpenAI and Larry Ellison of Oracle.
CANADA-US (MNI BRIEF): Canadian Prime Minister Justin Trudeau said Tuesday he is prepared for dollar-for-dollar retaliation if Donald Trump moves ahead with his intention to set a 25% tariff around Feb. 1, opening up the prospect of a trade war between two of the world's largest commercial partners. “I support the principle of dollar-for-dollar matching tariffs,” Trudeau told reporters at a cabinet retreat. On Trump’s border security concerns, less than 1% of illegal fentanyl entering the U.S. comes from Canada, Trudeau said. On trade, dozens of U.S. states have Canada as their top export market, he said. (See: MNI INTERVIEW: Canada Already Chilled By Trump Tariff Threat)
CANADA (MNI): Canada's inflation faded one-tenth to 1.8% as expected in December reflecting a tax holiday and while central bank officials say they will overlook that temporary effect, core rates also slowed amid economic slack that alongside threatened U.S. tariffs will keep the BOC cutting at the Jan. 29 decision. Statistics Canada's Consumer Price Index showed the first ever annual decline in restaurant meals that dropped 1.6%, Statistics Canada said Tuesday. Alcohol prices also declined 1.3%, also because of the two-month GST tax break that began Dec. 14. Consumer prices also declined 0.4% on a monthly basis.
CANADA (MNI): Canada's population will continue growing in coming decades even with a near-term dip triggered by the government's recent immigration curbs, the federal statistics office said Tuesday. Head count is estimated to climb from 40.3 million to 59.3 million five decades from now according to Statistics Canada's medium-growth scenario. Even the low-growth scenario has population increasing to 45.2 million, and the upside scenario to 80.8 million. (See: MNI: Canada Job Market Seen Reheating As Migrants Leave- CFIB
GERMANY (MNI INTERVIEW): Germany’s likely upcoming fragile coalition has a chance of sealing a deal on reforming the country’s constitutional borrowing limit, a leading economist told MNI, calling the economic platforms of both major parties ahead of next month’s elections too unrealistic to survive negotiations to form a government.
EU (MNI BRIEF): EU finance ministers have endorsed the launch of excessive deficit procedures against eight EU countries;Belgium, France, Hungary, Italy, Malta, Poland, Slovakia and Romania. The decision was in line with the recommendations of the European Commission, which on Friday dropped its earlier call for an EDP to be opened against Austria. Ministers also approved the amended medium-term debt plan recently presented by the new French government of Francois Bayrou. (see MNI BRIEF: Brussels Not Recommending EDP Launch Vs Austria )
OVERNIGHT DATA
CANADA DATA: Core CPI Latest Trends
Further acceleration for the three-month core rate at 3.5% annualized and some accelerating in CPIX (those measures will exclude direct impacts from tax changes, as opposed to CPIxFE which will include it).
Core CPI (median & trim av - BoC focus):
- % M/M: 0.26 in Dec'24 after 0.28 in Nov'24
- % 3mth ar: 3.5 in Dec'24 after 3.3 in Nov'24
- % 6mth ar: 2.8 in Dec'24 after 2.7 in Nov'24
- % Y/Y: 2.45 in Dec'24 after 2.6 in Nov'24
CPIX (ex 8 most volatile & indirect taxes):
- % M/M: 0.32 in Dec'24 after 0.13 in Nov'24
- % 3mth ar: 2.9 in Dec'24 after 2.1 in Nov'24
- % 6mth ar: 2.2 in Dec'24 after 1.8 in Nov'24
CPI xFE (ex food & energy):
- % M/M: 0.26 in Dec'24 after 0.13 in Nov'24
- % 3mth ar: 2.4 in Dec'24 after 2.1 in Nov'24
- % 6mth ar: 2 in Dec'24 after 1.9 in Nov'24
Source: Bloomberg, MNI
MNI CHICAGO REPORT ANNUAL SA: HEADLINE BAROMETER UNREVISED
- MNI CHICAGO REPORT ANNUAL SA: HEADLINE BAROMETER UNREVISED
- MNI CHICAGO DEC BUSINESS BAROMETER SA: 36.9 VS 36.9 PRIOR
- MNI CHICAGO DEC PRICES PAID SA 62.9 VS 60.3 PRIOR
- MNI CHICAGO: DEC EMPLOYMENT SA 46.8 VS 49.4 PRIOR
- MNI CHICAGO DEC PRODUCTION SA 35.1 VS 34.1 PRIOR
US DATA: Chicago Business Barometer™- December Unrevised
The December Chicago Business Barometer™ was unrevised at 36.9, the lowest since May 2024, as a result of the annual seasonal adjustment recalculation.
- The Barometer was higher than previously estimated in the first half of the year while the second half of the year – Q3 in particular – was weaker than previously estimated.
- August and September saw the largest downward revisions, with the Barometer revised lower 1.7 points to 44.4 (from 46.1) and to 44.9 (from 46.6) respectively. April recorded the largest upward revision of +2.0 points to 39.9 (from 37.9).
- The Barometer has remained below 50 for 13 consecutive months and, excluding November 2023, it has been in contractionary territory since September 2022. Q3 showed a faster pace of contraction that extended to Q4, with the Barometer revised lower to 44.6 in Q3 (-1.4 points) and to 39.3 in Q4 (-0.3 points). In contrast, Q1 was revised higher to 44.3 (+0.5 points) and to 41.2 in Q2 (+1.0 point).
- Employment saw the largest downwards revision in December of 2.6 points to 46.8, followed by Order Backlogs (-1.1 points).
- Supplier Deliveries was also revised lower by 1.0 point.
- Production was revised 1.0 points higher to 35.1, while New Orders rose a marginal 0.1 points in December.
- Prices Paid remained high, with the Prices Paid Indicator revised up 2.6 points to 62.9.
- Inventories was revised 1.7 points higher in December.
- Overall, data from the Chicago survey saw minor revisions. All series in the Chicago Report are seasonally adjusted by the US Census X-13 procedure and the seasonal adjustment factors are recalculated annually every January.
US DATA: Soft Philly Non-Manufacturing Activity/Prices Not Clear National Signal
The Philadelphia Fed's non-manufacturing regional business activity diffusion index fell to a 5-month low of -9.1 in January, from -3.4 prior (rev from -6.0). The Philadelphia Fed characterizes the implied activity as "soft" (in December it was described as "weak"), with the current general activity index dipping to 2.2 from 4.6 prior.
- The internals were mixed: new orders rose to 1.6 from -4.6, but sales were down to 2.6 from 3.2, full-time employment down to 1.5 from 3.2. Prices paid fell 2 points to 28.9 while prices received fell to -0.3 from 23.3.
- The latter comes after spiking 21+ points in December (after similar fluctuations between September and November), so it is hard to discern much signal here especially as the Philly manufacturing equivalent spiked in January, but some will see this as notable as the weakest since June 2023.
- The report maintains the theme of weakening regional services sector activity in recent months, though contrasts significantly from the prior two months in that the spike in forward expectations has reversed.
- The regional business activity expectations 6-months forward fell to 26.2 after averaging above 46 in Nov/Dec (29.8 in Oct), with firm-level business activity expectations showing a similar pattern. This is still elevated overall, though.
- Looking at the broader trends, current activity looks fairly flat over the last 2-plus years, when ignoring the large swings in a series that is volatile month-to-month.
- That's consistent with a softening rather than resurgent services sector, but this is looking increasingly like a regional than a national phenomenon, with ISM Services and Services PMI showing increasingly expansionary conditions in the last couple of months.
MARKETS SNAPSHOT
Below gives key levels of markets in afternoon NY trade:
- DJIA up 523.98 points (1.2%) at 43989.09
- S&P E-Mini Future up 48.25 points (0.8%) at 6083.25
- Nasdaq up 118 points (0.6%) at 19768.58
- US 10-Yr yield is down 6.7 bps at 4.5602%
- US Mar 10-Yr futures (TY) are up 8.5/32 at 108-26
- EURUSD up 0.0002 (0.02%) at 1.0419
- USDJPY down 0.07 (-0.05%) at 155.56
- WTI Crude Oil (front-month) down $1.99 (-2.56%) at $75.89
- Gold is up $33.79 (1.25%) at $2741.05
Prior European bourses closing levels:
- EuroStoxx 50 up 1.52 points (0.03%) at 5165.96
- FTSE 100 up 27.75 points (0.33%) at 8548.29
- German DAX up 51.69 points (0.25%) at 21042
- French CAC 40 up 37.45 points (0.48%) at 7770.95
US TREASURY FUTURES CLOSE
Curve update:
* 3M10Y -7.41, 24.886 (L: 22.116 / H: 28.755)
* 1Y10Y -4.502, 36.765 (L: 32.689 / H: 38.384)
* 2Y10Y -5.413, 28.604 (L: 28.007 / H: 32.975)
* 2Y30Y -5.432, 51.546 (L: 50.335 / H: 57.846)
* 5Y30Y -1.902, 40.275 (L: 39.016 / H: 45.471)
Current futures levels:
Mar 2-Yr futures (TU) up 0.25/32 at 102-23.75 (L: 102-22.1 / H: 102-27)
Mar 5-Yr futures (FV) up 3.5/32 at 106-08.75 (L: 106-0.3 / H: 106-16)
Mar 10-Yr futures (TY) up 8.5/32 at 108-26 (L: 108-08.5 / H: 109-04)
Mar 30-Yr futures (US) up 22/32 at 113-25 (L: 112-16 / H: 114-03)
Mar Ultra futures (WN) up 35/32 at 118-31 (L: 117-04 / H: 119-09)
US 10YR FUTURE TECHS: (H5) Gains Considered Corrective
- RES 4: 110-25 High Dec 12
- RES 3: 109-31 High Dec 18
- RES 2: 109-17+ 50-day EMA
- RES 1: 109-04/109-06 High Jan 21 / High Dec 31
- PRICE: 108-23+ @ 17:05 GMT Jan 21
- SUP 1: 108-00/107-06 Low Jan 16 / 13 and the bear trigger
- SUP 2: 107-04 Low Apr 25 ‘24 and a key support
- SUP 3: 107-00 Round number support
- SUP 4: 106-11 2.00 proj of the Oct 1 - 14 - 16 price swing
The medium-term trend condition in Treasury futures remains bearish and the recovery that started Jan 13, is considered corrective. The contract has traded through the 20-day EMA, at 108-17. This exposes 109-06, the Dec 31 high, and 109-17+, the 50-day EMA. A clear break of the 50-day average is required to strengthen a bullish theme. The bear trigger has been defined at 107-06, the Jan 13 low.
SOFR FIXES AND PRIOR SESSION REFERENCE RATES
US TSYS/OVERNIGHT REPO: ON RRP Dips Below $100B For Just 3rd Time Since 2021
Takeup of the Fed's overnight reverse repo facility fell for the 4th session in 5 Tuesday, dropping $22B to the 2nd lowest level of the year so far and only the 3rd below $100B since April 2021.
- There may yet be another fresh low set this week amid large bill settlements, though levels aren't expected to dip too far below $100B.
US TSYS/OVERNIGHT REPO: Secured Rates, Effective Funds Flat Friday
Latest data shows no change to key secured rates (including SOFR) nor, unsurprisingly, effective Fed funds at the end of last week.
- As such, SOFR continues to print about 4bp below EFFR since the FOMC's 5bp downward adjustment to ON RRP in December, with BGCR and TGCR even closer to the bottom of the Fed funds target range of 4.25%.
- A pickup in bill settlements could see rates tick up on a couple of occasions this week including Tuesday and Thursday, but generally rates are expected to remain fairly tamed until the usual end-month rise.
| REPO REFERENCE RATES (rate, change from prev. day, volume): |
| * Secured Overnight Financing Rate (SOFR): 4.29%, no change, $2326B |
| * Broad General Collateral Rate (BGCR): 4.27%, no change, $884B |
| * Tri-Party General Collateral Rate (TGCR): 4.27%, no change, $869B |
| New York Fed EFFR for prior session (rate, chg from prev day): |
| * Daily Effective Fed Funds Rate: 4.33%, no change, volume: $102B |
| * Daily Overnight Bank Funding Rate: 4.33%, no change, volume: $299B |
SOFR FIX - Source BBG/CME
- 1M 4.30213 0.00173
- 3M 4.29034 0.00025
- 6M 4.25210 -0.00171
- 12M 4.19466 0.00041
EUROPE BONDS: EGBs-GILTS CASH CLOSE: Bull Flatter
Gilts outperformed Bunds in a bull flattening move across European curves Tuesday.
- European bonds fluctuated overnight, with competing moves as US President Trump opined on tariff imposition. Supply weighed on EGBs, with France and Lithuania conducting syndications (France's 15Y OAT seeing record order books >E134B). For their part. Gilts saw limited pressure on a Jan-40 Gilt syndication.
- After weakening for most of the European morning session, global FI saw a recovery in the afternoon triggered by a slightly softer than expected Canada CPI report.
- European data was largely shrugged off: UK labour market figures were mixed (soft quantity readings vs. firmer-than-expected private wages). German ZEW expectations fell by more than expected.
- The German and UK curves bull flattened. Periphery EGB spreads to Bunds closed slightly tighter, with semi-core French OATs outperforming on the aforementioned well-received syndication.
- Wednesday's calendar is highlighted by ECB speakers including Lagarde, with data including UK public finances.
Closing Yields / 10-Yr EGB Spreads To Germany
- Germany: The 2-Yr yield is down 0.7bps at 2.215%, 5-Yr is down 1bps at 2.318%, 10-Yr is down 1.6bps at 2.51%, and 30-Yr is down 2.8bps at 2.731%.
- UK: The 2-Yr yield is down 4.3bps at 4.334%, 5-Yr is down 5.1bps at 4.337%, 10-Yr is down 6.9bps at 4.59%, and 30-Yr is down 5.9bps at 5.151%.
- Italian BTP spread down 1.2bps at 108.1bps / French OAT down 1.2bps at 77bps
FOREX: USD Index Steadily Erodes Early Gains, EURUSD Back Above 1.0400
- Overnight headlines regarding Trump imposing tariffs on Mexico and Canada as soon as February 01 dented major equity indices and boosted the greenback through APAC hours on Tuesday. However, the steady recovery for these equity benchmarks throughout the session weighed on the broad dollar indices, with the DXY tracking back towards the Monday lows in late US trade.
- USDCAD volatility has understandably been in the spotlight, registering an impressive daily range of 1.4290/1.4516. Broader risk/greenback sentiment has largely been responsible for the Canadian dollar recovery, however, markets did also receive broadly in line with expectation inflation data for December.
- Separately, Canadian officials have maintained a retaliation rhetoric towards the tariff announcement, while Mexico’s president said Mexico must keep a cool head on Trump orders. In both instances, the local currencies have shown sold resilience across Tuesday’s session.
- EURUSD has risen back above 1.0400 in latest dealings with the lack of concrete details on tariffs for Eurozone countries potentially bolstering the single currency relief rally. We have noted the bounce so far appears corrective in nature; however, the latest bullish developments are being monitored closely. In particular, the pair has breached the 20-day EMA, at 1.0346, and pierced trendline resistance at 1.0393, drawn from the Sep 30 ‘24 high.
- Single currency outperformance also stands out in the crosses, with the likes of EURCHF and EURGBP holding close to the most recent cycle highs.
- New Zealand CPI highlights the overnight docket before we await speakers from the World Economic Forum in Davos on Wednesday, which includes ECB President Lagarde.
| Date | GMT/Local | Impact | Country | Event |
| 22/01/2025 | 2145/1045 | *** |  NZ | CPI inflation quarterly |
| 22/01/2025 | 0001/0001 | * |  GB | Brightmine pay deals for whole economy |
| 22/01/2025 | 0700/0700 | *** | GB | Public Sector Finances |
| 22/01/2025 | 0700/1500 | ** |  CN | MNI China Money Market Index (MMI) |
| 22/01/2025 | 1200/0700 | ** |  US | MBA Weekly Applications Index |
| 22/01/2025 | 1330/0830 | * |  CA | Industrial Product and Raw Material Price Index |
| 22/01/2025 | 1355/0855 | ** | US | Redbook Retail Sales Index |
| 22/01/2025 | 1515/1615 |  EU | ECB's Lagarde in dialogue on Unlocking Europes potential | |
| 22/01/2025 | 1630/1130 | * | US | US Treasury Auction Result for Cash Management Bill |
| 22/01/2025 | 1800/1300 | ** | US | US Treasury Auction Result for 20 Year Bond |
| 23/01/2025 | 2350/0850 | ** |  JP | Trade |
| 23/01/2025 | - |  NO | NorgesBank Meeting | |
| 23/01/2025 | - | JP | Bank of Japan Meeting |