10-Year Yield Back Above 2.80%

Rates reverse rally, end the day on the highs. Two days of declining rates was plenty as far as the market was concerned. Swap rates and Treasury yields climbed 11-12 bps higher on the day, egged on predominantly by a risk-on move that saw most stock indices eek out gains. Otherwise, the main news of the day came from Europe where gas prices rose precipitously after Gazprom announced its halting supplies to Poland and Bulgaria. Russian natural gas makes up more than 30% of Europe’s supply, and the action was immediately felt in energy markets where natural gas contracts rose by 8% on the day.

PCE inflation data looms. Annualized GDP figures along with initial jobless claims are due out tomorrow, but the real highlight will be the Core PCE price index that the Fed relies on as a barometer for inflation. Tomorrow’s figure is unlikely to have any serious ramifications for the Fed’s decision in a week (the market is pricing in a 100% likelihood of a 50bp hike) but a meaningful deceleration could spell relief for a market that is pricing in 10+ rate hikes through February of next year.

US goods deficit hits a record high in March. Following the record high set in February, the goods trade deficit rose by 17.3% to $125.3 billion ($105 billion expected), largely impacted by the Russia-Ukraine conflict and growing inflationary pressures. Last month, imports rose by 11.5% while exports increased by only 7.2%, reflecting a rising demand for imported goods. Imported industrial supplies accounted for much of the spike, rising by 15% in March.