US Treasuries were under pressure in overnight with supply and a skewed PPI result. While headline PPI came in flat, with core down -0.1% m/m (+0.3% expected), upward revisions to January and strong core PCE components led to renewed selling.
Equities came under pressure later in the day with Trump opining on a 200% tariff on French and EU booze in retaliation for the EU's existing 50% tariff on U.S. whiskey imports, giving Treasuries a reprieve with a safe-haven bid.
The 30yr auction cleared at 4.623%, with non-dealer allotments dropping to their lowest level since August. There was some short covering ahead of the auction which persisted through to the close, the 2yr closing at 3.93% and 10yr dipping to 4.25%.
What’s priced in? A June Fed rate cut is pretty much priced in and futures are implying 71bps of rate cuts for the year. The terminal rate remains priced around 3.50% by Q3 2026.
Investment-grade credit spreads widened by around 3bps. Primary bond issuance was subdued, with only a single $2bn front-end deal executed, bringing the week's total issuance to $36.6bn, slightly below the projected $37bn.
The S&P closed down 1.4%, officially entering correction territory, at -10% from its February peak. The Dow lost over 600 points at session lows, while the Nasdaq dropped 1.96%. The "Magnificent 7" tech stocks underperformed, closing -2.47% and heading for their worst week since September.
Friday’s Key Events:
U.S. Michigan Consumer Sentiment Index (March preliminary)
U.K. GDP (January)
ECB speeches from Cipollone and Escriva
New Zealand food price index (February)
Business NZ Manufacturing PMI (February)
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