After some initial weakness, longer German bonds ended the day with small gains, as there were signs things could heat up in Ukraine again. Intra-Euro-zone bond spreads corrected wider, as several ECB speakers played down the prospect of near-term QE (see more below). US yields fell as well by a couple of bp.
Bonds are likely to remain supported today, and yields could fall a bit further.
Equities felt more notable pressure on both sides of the Atlantic. S&P 500 lost a further 1.08% and could easily see more losses today. Asian equities are trading mixed this morning, and Europe is set to open slightly down.
ECB members playing down the prospects of quick QE
Several ECB members were commenting yesterday that one should not expect the central bank to embark on a QE programme in the near future. Executive Board member Mersch said that inflation risks are more or less level, which means the ECB does not see an imminent risk of deflation. Regarding QE, he said there was still a long way from a theoretical agreement to implementation, adding there was also room to move with conventional measures. Nowotny, in turn, said the ECB was preparing for all eventualities, which does not mean steps are to be taken immediately.
Yesterday’s comments should not have been particularly surprising, but they should further temper expectations of near-term asset purchases by the ECB. The outlook needs to change more materially for the ECB to embark on a QE programme, while the threshold to cut rates further, including a negative deposit rate, is much lower for the ECB compared to bond purchases.
ECB and Bank of England to join forces to revive the ABS market
The ECB’s Executive Board member Mersch said yesterday the ECB would join forces with the Bank of England at the IMF’s Spring meeting this week to argue for removing the stigma on ABSs. He was referring to the new regulation penalizing securitization rather severely, and does not take into account the fact that European ABSs have performed much better than US ones in terms of default rates. Such argumentation makes a lot of sense. After all, the ECB could help to revive the market with a purchase programme, but unless issues regarding the underlying demand outlook are resolved, the market risked a collapse as soon as the ECB withdrew its support.
Light economic data – eyes on earnings, politics and central bank speeches
Today’s economic data calendar looks very light. UK February industrial production will be released at 10:30 CET and the US NFIB small business optimism index at 13:30 CET.
In addition, Italian Prime Minister Renzi will present his budget proposal at 15:00 CET, while the Spanish Parliament is due to discuss Catalonia’s referendum request.
The ECB’s Weidmann will speak at 18:30 CET, the Fed’s Kocherlakota at 19:30 CET, Plosser at 20:45 CET and Evans at 1:00 CET (early Wednesday).
Finally, the Q1 earning reports will be set in motion by Alcoa in the evening.
New German linker and plenty of other auctions
The issuance front has a lot to offer today, with the highlight being the launch of a new April 2030 inflation-linker from Germany. The Netherlands will re-open its 5-year benchmark for EUR 2 to 3bn, while Austria will tap bonds maturing 2023 and 2044 for a combined EUR 1.21bn.
This week’s sizable US benchmark auctions, in turn, will start with USD 30bn of 3-year notes.
Nordea