Bonds continued to rally yesterday. The German 10-year benchmark yield fell another 3bp to around 1.54%, already close to the March low of some 1.50%. The US 10-year yield retreated by around a bp.
Intra-Euro-zone spreads continued to narrow in the semi-core. This morning, the ratings agency Fitch affirmed its stable outlook on the Finnish AAA rating, while Standard & Poor’s affirmed its stable outlook on the Austrian AA+ rating. Both actions were as expected, but may still give a minor boost to Austrian and Finnish bonds today.
The recent moves lower in yields would present a good opportunity to take some profits ahead of the weekend, but with the end of Q1 around the corner, while we could easily see even softer Euro-zone inflation numbers (see more below), staying long bonds still seems a good strategy for today.
European equities squeezed some minor gains yesterday, while S&P 500 retreated by 0.19%. Asian equities are trading mostly with small advances this morning, and also Europe is set to open slightly up.
US housing market loses more steam – labour market doing better
The February pending home sales index retreated by another 0.8%, the eighth consecutive monthly drop. The index has now fallen by 15% from the highs seen last summer, and point to another drop in existing home sales. Higher interest rates have thus clearly cooled the housing recovery, and the weakness is due to more than just bad weather.
US labour market recovery, in turn, seems to be picking up steam. Initial jobless claims fell from 321k to 311k, pulling the 4-week moving average down as well. The data add to expectations ahead of next week’s March employment report.
More weak credit data from the Euro zone
February credit numbers for the Euro zone offered little hope that credit growth would start to boost the recovery any time soon. Loans to the private sector contracted by 2.2% y/y, a slightly slower pace compared to the (downward-revised) 2.3% decline seen in January. Lending to non-financial companies fell by 3.0%, slightly faster than in February (but adjusted for sales and securitisations, lending retreated at the fastest rate during the Euro era). Loans to households were close to unchanged compared to a year earlier.
Soft Euro-zone inflation numbers to give bonds another boost
Preliminary March Euro-zone inflation numbers will start flowing in today, with Spanish figures out at 9:00 CET and German ones at 14:00 CET (though numbers from the German states will start coming in at 9:00 CET). Risks are skewed towards even softer numbers, which would put more pressure on the ECB to ease policy further and give bonds another boost. The flash estimate of Euro-zone March inflation will be out on Monday.
In addition to the inflation numbers, the Euro-zone economic sentiment indicator at 11:00 CET will gather interest, while the ECB will release the latest LTRO repayment numbers at 12:00 CET.
In the US, the main focus will be captured by the February consumer spending report, including the Fed’s preferred inflation measure, while the March final University of Michigan consumer sentiment will be out at 14:55 CET. In addition, the Fed’s George will speak at 17:55 CET, the ECB’s Visco at 9:45 CET and Weidmann at 18:30 CET.
Italian bond auctions ahead
This week’s bond auctions will be concluded by the Italian offerings today. The country will sell 5-year bonds for EUR 2 to 3bn, 10-year ones for EUR 3 to 3.75bn and launch a new 5-year floater for EUR 2.5 to 3.25bn. The results will be out at 11:10 CET.
Nordea