Market 04/11: 30Y T-bond auction continues to fail despite favorable PPI report

$22B 30Y Treasury auction not very favorable

For three consecutive days, Treasury auctions show US bond demand has dropped sharply with
Dealers have to step in to provide more liquidity
Tail levels for High Yield in all 3 auction sessions

Details of today's auction results:

High Yield: 4.671% (market yield: 4.661% | previous session: 4.331%)
=> Tail level: 1 bps
- Successful bid ratio at High Yield level: 58.23% (previous session: 66.54%)
Bid-to-cover: 2.37 (slight decrease from previous session: 2.47)
Competitive award components:
- Dealers (dealer): 17.34% (higher than previous session: 13.93%)
- Foreign bidders: 64.38% (lower than previous session: 69.29%)

Fed officials' statements: William, Barkin, Collins

William (New York Fed): No need to adjust interest rates in the near future

Economy heading towards better balance and may achieve 2% inflation target
Expected inflation to gradually decline to 2% despite many fluctuations.
Expected unemployment rate to peak at 4% this year.

Barkin (Richmond Fed): Inflation has not yet reached the level Fed desires.

Latest inflation data does not increase confidence that inflation is trending down across the economy.
Strong labor market proves US not in recession

Collins (Boston Fed): Rate cuts may need to be delayed or scaled back this year

Starting rate cuts at the end of this year is appropriate
Degree of easing this year may be lower than expected.
Recent data has reduced concerns about pressure to cut rates.

US March PPI lower than expected - opposite to yesterday's CPI

1 - PPI downtrend likely to cause PCE to decrease - completely different from CPI inflation

March PPI increases +0.2% M/M, lower than expected +0.3%
YoY, March PPI +2.1% Y/Y (lower than expected +2.2%) - highest increase since April 2023.
Typically, PPI cooling will soon be reflected in PCE basket.

Core PPI +2.4% Y/Y (higher than expected +2.3%) - this is the 3rd consecutive time core PPI higher than expected

Core CPI and core PPI show different trends:

Since October 2023, core CPI increased from 3.8% to 4.8%; PCE decreased from 3.8% to 3.3%

2 - PPI upside driven by financial services, energy prices fall the most in the basket

Service prices rise, due to financial service costs - investment management fees surging

Energy prices -1.6% M/M as demand from government and exports both decline

Gasoline and oil prices are the largest declining component in the PPI basket, even though daily gasoline and oil prices are still rising

The reason for the decline in gasoline PPI is due to seasonally adjusted gasoline and oil prices falling, while unadjusted prices (spot prices) remain high.

Additionally, auto insurance PPI +0.1% M/M, much lower than CPI's +2.6% M/M

This difference alone creates a 10 bps gap between core PCE and CPI

Car prices are falling, but auto insurance prices are rising sharply

For some models, insurance costs account for more than 1/4 of the total car purchase cost

Continuing jobless claims rose last week - accompanying the slowdown in wage growth in March

Initial jobless claims for the past week +211,000, lower than expected +216,000
Continuing claims surged to 1.817 million people - highest in 10 weeks

Atlanta Fed employment data: Layoffs at lowest level since early 2021, wage growth slowing

Gap between wage increases for job switchers and stayers is narrowing rapidly

Wage growth slows to 4.7% in March — lowest since Dec 2021

40,500 jobs cut this month

China: March CPI lower than expected - deflation returns

China's March CPI falls more than expected, while PPI continues to decline due to prolonged deflationary trend with no signs of improvement

China signals continued CNY support as USD/CNY nears policy-allowed range breach

Goldman Sachs raises China 2024 growth forecast to 5.0%

Crypto market: DEX platforms face potential SEC lawsuits

Uniswap Labs states DEX platforms face potential SEC lawsuits, risk spilling over to entire DeFi sector.

Grayscale - world's largest crypto asset manager, transferred 3762 BTC worth $266 million to Coinbase

Bitcoin mining companies ramping up BTC mining ahead of halving in 2 weeks - event will significantly reduce company revenues

Other news

ECB keeps interest rates unchanged, signaling possible rate cut in June

At the April tax deadline, hundreds of billions of USD could be withdrawn from the banking system — US capital markets at risk of capital outflow.

Trương Mỹ Lan - Vietnam's real estate tycoon sentenced to death in the world's largest financial fraud case.

Japanese Yen (JPY) hits lowest level since 1990, prompting traders to beware of BOJ intervention risk