Long bond yields moved cautiously with all eyes already on the ECB meeting. German 10-year Bund yield ended slightly higher after trying unsuccessfully to break over 1.5 % level.
Yield was pushed higher by improving risk sentiment and the scarce demand in the German auction. Comments from Russian President Vladimir Putin appeared to open a way to resolving the standoff over Ukraine, which provided some support for the risk sentiment.
Fed’s Yellen’s remarks were not a big surprise, but they provided some comfort in the loose monetary policy to remain intact for the time being. The 10-year US Treasury rate inched lower to 2.59%.
Today US yields have turned higher with the equity markets opening higher in Asia. German yields should head slightly upwards this morning.
Chinese trade figures a relief
Chinese April trade figures came in slightly better than expected this morning. Exports grew by 0.9% and imports by 0.8%. Previous months exports had declined by 6.6% and 18.1%. Also this time around markets were rather looking for a slight drop. Figures provide some relief after the soft tone in Chinese economy in the beginning of the year.
No surprises from Yellen
Fed chairman Yellen provided no surprises in her prepared remarks to the Joint Economic Committee of Congress yesterday. Yellen reiterated that economic growth is on track after the dismal first quarter and that the labour market slack is still substantial.
She did sound a bit more concerned about the recent slowdown in the housing market and heightened geopolitical tensions, probably hinting to the situation in Ukraine. Markets took comments quite calmly, however, as there is no reason to change view on Fed with the remarks.
Words do come easy
Expectations of quick action from the ECB have been receded lately, after money market tensions have somewhat eased, the euro has not strengthened materially further, and bond yields have headed lower. Euro-zone inflation, in turn, rebounded in April, albeit probably less than the ECB had hoped.
Even though an unchanged policy announcement looks like the most likely outcome, risks are clearly skewed towards action. Only two of the 58 analysts expect a rate cut today in a Bloomberg poll. However, with e.g. the German 10-year yield hovering near 11-month lows, positioning for a rebound higher in yields looks more attractive.
Wild card is what ECB thinks of eonia rate surging yesterday to 26bp from 11bp. Volatility is not ECB’s friend and the central bank has an option to ease the liquidity situation already today.
The ECB will release its interest rate decision at 13:45 CET, while the press conference is set to start at 14:30 CET.
Elesewhere on the calendar..
Also the Bank of England will release its latest monetary policy decision today (at 13:00 CET), but as no changes and thus also no statement are expected, it should be a non-event.
In today’s economic data, German March industrial production will be released at 8:00 CET and US weekly jobless claims at 14:30 CET. The Fed’s Plosser, in turn, will speak at 14:00 CET, Evans at 15:25 CET, Tarullo at 15:30 CET, while Dr Yellen will deliver her testimony to the Senate Budget Committee at the same time. Finally, the Fed’s Bullard will speak at 20:00 CET.
Spanish, Irish and US supply
There will be plenty of action on the supply front today. Spain will re-open bonds maturing in 2017, 2020 and 2028 for a combined EUR 3.5 to 4.5bn, while Ireland will sell its March 2024 bond for EUR 0.75bn. This week’s US benchmark auctions, in turn, will be concluded by the USD 16bn 30-year bond offering.
Nordea