German bond yields edged higher yesterday, while intra-Euro-zone bond spreads narrowed outside the semi-core. Especially Greek bonds rallied on the prospect of a successful new bond launch. The German 10-year yield ended the day higher by some 2bp.
US bonds, in turn, rallied after the Fed minutes (see more below). The 5-year yield plunged some 8bp in the aftermath of the minutes, but had risen earlier in the day so ended the day lower by around 5bp. 10-year bonds rallied as well after the minutes, but as this part of the curve was pressured by fresh supply, while the good performance of equities limited the demand for bonds, the 10-year yield actually closed higher by around a bp. The US curve thus steepened clearly.
Equities liked the Fed minutes and S&P 500 rallied by 1.09%. Nevertheless, Asian equities are trading mixed this morning, as Chinese trade data look quite awful. Exports fell by 6.6% y/y in March, while imports plunged by 11.3% y/y, while gains were expected. Even though the numbers are likely distorted by the inflated data last year, the data look bad nonetheless. European equities are still set to open higher.
There should still be performance potential left in bonds, so playing the market from the long side today looks like a viable strategy.
Fed minutes play down the higher interest rate forecasts
Fed minutes from last month’s meeting said several participants noted that the increase in the median projection overstated the shift in the projections, while some expressed concerns that the higher forecasts could be misconstrued as indicating a move by the Committee to a less accommodative reaction function. However, a number of participants observed that an upward shift was arguably warranted by the improvement in participants’ outlooks for the labor market since December and therefore need not be viewed as signifying a less accommodative reaction function. The minutes thus support the view that rate hikes are not around the corner. Such a view was also echoed in the comments from the Fed’s Evans (a dove and a non-voter this year) that it would likely take at least six months for rate hikes to commence after the bond purchase programme has ended. He said it could be six months, it could be 16.
Bank of England and jobless claims in store
Another calm data day lies ahead. French February industrial production will be released at 8:45 CET, Italian numbers at 10:00 CET and US weekly jobless claims at 14:30 CET.
The Bank of England, in turn, will release its monetary policy decision at 13:00 CET, but neither changes nor a statement are expected.
In addition, the ECB’s Praet will speak at 15:00 CET, and Constâncio as well as the Fed’s Evans at 17:30 CET.
Finally time for Greece – US and Irish auctions also on the agenda
Greece did not enter the market yesterday, but officially mandated the leads for 5-year EUR issuance. The launch should take place today. Initial talks suggested the bond would yield 5.25-5.5%, but strong demand could push the yield below 5%, which could be considered a big success. The order book size is likely to land in double-digit territory. As a reference, the February 2024 Greek bond yield fell below 6% yesterday.
On the auction front, Ireland will sell 10-year bonds for EUR 1bn, while USD 13bn of 30-year bonds will be offered in the US.
Nordea