The week starts with good news from China, as the official PMI rose to 50.8 in May (from 50.4 in April). The report showed a braod-based recovery in manufacturing activity.
On Friday, longer German yields continued to rebound and the curve bear-steepened. Spanish and Italian spreads narrowed, but the moves were not huge, while spreads in the semi-core widened. The recent rebound seen in core yields has been rather modest relatively to the big rally seen earlier. Bonds are likely to remain supported early this week amidst ECB easing expectations.
Package deals and payrolls
A huge week lies ahead. The highlights are the ECB meeting on Thursday, where a whole package of easing measures will likely be announced, and the US June employment report on Friday. We expect +225k in nonfarm payrolls. Core bonds are likely to remain supported ahead of the ECB, but a rebound in yields is likely to be in the cards after the ECB, supported further by Friday’s US data.
The calendar looks rather heavy otherwise as well. The US manufacturing ISM index will be released today at 16:00 CET, the Euro-zone May inflation flash estimate tomorrow. The Bank of England, in turn, will also release its latest monetary policy decision on Thursday – no change expected.
Elsewhere in today’s calendar, the Fed’s Evans will speak at 9:00 CET, Final May Euro-zone manufacturing PMI will be out at 10:00 CET, the ECB’s Mersch will speak at 13:15 CET, preliminary German May inflation numbers at 14:00 CET, while the ECB’s Linde will speak at 16:30 CET.
New French 10-year benchmark & German and Spanish supply
This week’s auction calendar became a bit lighter, after Austria cancelled its scheduled auctions, but there will still be action ahead. Germany will re-open its 5-year benchmark for EUR 4bn on Thursday, while France and Spain will sell bonds on Thursday. France will introduce a new 10-year benchmark as well as re-open 8- and 15-year bonds for a combined EUR 7.5 to 8.5bn. Spain, in turn, will sell bonds maturing in 2017 and 2019.
The flow of coupon and redemption payments will pick-up this week, as there will be some EUR 22bn of such flows from EUR government bonds in store this week. These payments will stem from Italian bonds.
Nordea