Bunds and gilts may start mixed or a little higher Monday as investors remain in cautious gear ahead of the meeting between Merkel and Sarkozy amid more concern about the eurozone’s viability.
U.S. Treasurys are little changed Monday, after markets defied a solid U.S. jobs report Friday to post a moderate price rally, scuttling a brief run above 2% in the key 10-year yield.
But uncertainty over the euro zone and supportive comments from a Federal Reserve policy maker turned the bond market around, wooing fresh buyers to scoop up bonds at cheaper levels. The rebound was the latest blow to many bond bears who have argued that improving U.S. data would have reduced demand for Treasurys as a safe harbor.
Europe’s never-ending drama is tranquilizing Treasurys to the point where even mounting signs of a healing U.S. economy fail to rouse bond bears.
The counterintuitive reaction to Friday’s blockbuster U.S. jobs report is the latest piece of proof. Such better-than-expected data usually would spur a weighty drop in Treasurys prices. But instead, markets saw only a brief weakening that almost immediately disappeared as a wave of buyers scooped up the debt at cheaper prices.
Over the weekend, one Federal Reserve official chastized the mortgage sector and another expressed hope for the economy.
Federal Reserve Gov. Sarah Bloom Raskin called upon mortgage servicers to fix their “sloppy and deceptive practices” and said the Fed must impose fines on servicers as part of a push for more forceful government action to fix the broken housing market.
It is important “that the severe misconduct that has been uncovered in the mortgage servicing sector be addressed through intensified public enforcement of the law as part of the overarching effort to rebuild our damaged communities and neighborhoods,” Raskin told a conference.
The Federal Reserve still has room to boost the economy even with interest rates near zero, St. Louis Fed President James Bullard said Saturday.
Bullard said earlier rounds of bond-buying, known as “quantitative easing,” had successfully boosted inflation after the economy flirted with deflation in 2010. And he said further quantitative easing would also likely be effective, if necessary.
But Bullard, who is not a voting member of the policy-making Open Market Committee, said further quantitative easing isn’t necessary now because the economic recovery appears to be gaining strength.
EasyForexNews Research Team