Treasury Auction Preview

$30 bln 2-year Treasury note auction (results at 13:00 ET) Prior auction results: High yield: 2.255% Bid-to-cover: 2.72 Indirect bid: 46.3% Direct bid: 13.4% Average results of prior 12 auctions: High yield: 1.584% Bid-to-cover: 2.85 Indirect bid: 50.8% Direct bid: 13.4%

Long End Remains Ahead

Recent action saw an extension of gains in the Treasury market. The long bond has continued its outperformance while the 10-yr note has returned to unchanged. Up front, 2s and 5s continue showing modest losses, but they sit at their best levels of the day. Elsewhere, the S&P 500 is up 1.3%, but the index has backed off its opening high. Yield Check: 2-yr: +1 bp to 2.27% 5-yr: +1 bp to 2.62% 10-yr: -1 bp to 2.82% 30-yr: -2 bps to 3.06%

Long Bond Back to Unchanged

Longer-dated U.S. Treasuries have bounced off their opening lows while shorter tenors remain in negative territory, but they too have edged up off their worst levels of the morning. Notably, the long bond is on the verge of turning positive, which is pressuring the 30-yr yield back into the neighborhood of its 50-day moving average at 3.064%. Elsewhere, the stock market is looking for a higher open as futures on the S&P 500 trade nearly 40 points above fair value after the S&P 500 finished Friday's session just three points above its 200-day moving average (2585.22). Yield Check: 2-yr: +3 bps to 2.29% 5-yr: +3 bps to 2.64% 10-yr: +1 bp to 2.84% 30-yr: UNCH at 3.08%

Yields Climb

European debt trades mostly lower while European equities have bounced off this year's lows. Deutsche Bank (DB), however, has shown continued weakness, trading lower by 0.5% in Frankfurt. Italian debt trades a bit behind other regional issues after some signs of discord between Silvio Berlusconi's Forza Italia and Matteo Salvini's Lega. On Friday, Mr. Berlusconi criticized Lega's discussions with Movimento Cinque Stelle, but an election of parliamentary speakers took place nonetheless. Forza Italia's Maria Elisabetta Alberti Casellati became the Senate president while Robert Fico of Movimento Cinque Stelle was elected president of the lower chamber. European Economic Data: UK's Gross Mortgage Approvals 38,100 (expected 39,200; last 40,100) France's Q4 GDP +0.7% quarter-over-quarter (expected 0.6%; last 0.6%); +2.5% year-over-year, as expected (last 2.5%) Italy's non-EU trade surplus EUR1.99 billion (last deficit of EUR520 million) Yield Check: France, 10-yr OAT: +1 bp to 0.77% Germany, 10-yr bund: +1 bp to 0.54% Greece, 10-yr note: +2 bps to 4.40% Italy, 10-yr BTP: +6 bps to 1.93% Portugal, 10-yr PGB: +2 bps to 1.74% Spain, 10-yr ODE: +1 bp to 1.27% U.K., 10-yr gilt: +3 bps to 1.47%

Market Pulls Back

U.S. Treasuries are on track for a lower start after the futures market retreated in overnight action. The selling took place amid a rebound in global equities, as fears of an impending trade war receded. China's Ambassador to the United States Cui Tiankai said his country is analyzing all options in response to U.S. tariffs, including a potential reduction of U.S. Treasury purchases. Keep in mind that the U.S. Treasury will sell nearly $300 billion in bills and notes, representing the largest weekly sale of debt on record. It is worth noting that U.S. and Chinese trade officials are reportedly working on an agreement to avert a trade war. Besides trade policy, investors will keep a close eye on the performance of corporate debt, which has experienced some notable struggles as of late. The iShares iBoxx $ Investment Grade Corporate Bond ETF (LQD 115.72, 0.00) slumped into the close on Friday to settle just a tick above this year's low, which coincides with levels not seen since last year. Yield Check: 2-yr: +2 bps to 2.28% 5-yr: +2 bps to 2.63% 10-yr: +1 bp to 2.84% 30-yr: UNCH at 3.08%News: South Korean press reported that South Korea's Trade Ministry and U.S. counterparts have agreed in principle to renegotiate the current trade agreement New Zealand's February trade surplus NZD217 million (expected deficit NZD100; last deficit NZD655 million). February Imports NZD4.24 billion (expected NZD4.63 billion; last NZD4.94 billion) and February Exports NZD4.46 billion (expected NZD4.56 billion; last NZD4.29 billion) Singapore's February Industrial Production -0.5% month-over-month (expected -8.4%; last 4.7%); +8.9% year-over-year (consensus 5.1%; last 16.9%) Fed Speakers: Retiring New York Fed President (permanent voter) William Dudley at 12:30 ET Treasury Auctions: $30 bln 2-yr Treasury note auction results at 13:00 ET

Short End Outperforms

U.S. Treasuries ended the week on a mostly higher note after spending Friday's session inside a narrow range. The Treasury market followed Thursday's spike with a mixed open as the long bond displayed relative weakness while shorter tenors flashed early strength. The 2-yr note and the 5-yr note outperformed into the close while the 30-yr bond erased the bulk of its opening loss, but could not make a sustained move into the green. The 2s30s spread expanded three basis points to 82 bps while the 2s10s spread expanded two basis points to 57 bps. Yield Check: 2-yr: -2 bps to 2.26% 5-yr: -2 bps to 2.61% 10-yr: UNCH at 2.83% 30-yr: +1 bp to 3.08%News: New home sales declined 0.6% month-over-month in February to a seasonally adjusted annual rate of 618,000 (Briefing.com consensus 620,000) from an upwardly revised 622,000 (from 593,000) in January. The key takeaway from the report is that new home sales declined for the third consecutive month, but are up 0.5% year-over-year. Orders for durable goods increased a stronger than expected 3.1% (Briefing.com consensus +1.5%) in February following a 3.5% decline in January. Excluding transportation, orders for durable goods rose a stronger than expected 1.2% (Briefing.com consensus +0.6%) after declining 0.2% in January. On a year-over-year basis, durable goods orders were up 9.1% The key takeaway from the report is that it showed a welcome rebound in business spending that has mitigated some of the nervousness about the loss of economic momentum seen in the data of late. Commodities: WTI crude: +2.4% to $65.87/bbl Gold: +1.7% to $1349.60/ozt Copper: -1.0% to $2.99/lb Currencies: EUR/USD: +0.5% to 1.2365 USD/JPY: -0.5% to 104.77 The Week Ahead: Monday: $30 bln 2-yr note auction results at 13:00 ET Tuesday: January S&P Case-Shiller Home Price Index (prior 6.3%) at 9:00 ET; March Consumer Confidence (prior 130.8) at 10:00 ET; and $35 bln 5-yr note auction results at 13:00 ET Wednesday: Weekly MBA Mortgage Index (prior -1.1%) at 7:00 ET; February Advance International Trade in Goods (prior -$74.4 billion), Q4 GDP -- Third Estimate (prior 2.5%), and Q4 GDP Deflator -- Third Estimate (prior 2.3%) at 8:30 ET; February Pending Home Sales (prior -4.7%) at 10:00 ET; weekly crude inventories (prior -2.62 mln) at 10:30 ET; and $29 bln 7-yr note auction results at 13:00 ET Thursday: February Personal Income (prior 0.4%), Personal Spending (prior 0.2%), PCE Prices (prior 0.4%), core PCE Prices (prior 0.3%), weekly Initial Claims (prior 229K), and Continuing Claims (prior 1.828 mln) at 8:30 ET; Chicago PMI (prior 61.9) at 9:45 ET; Final March Michigan Sentiment Index (prior 102.0) at 10:00 ET; and weekly natural gas inventories (prior -86 bcf) at 10:30 ET Friday: Bond and equity markets closed for Good Friday