Yields headed higher early yesterday, but profit taking in the equity markets finally pushed yields down, though only marginally. Both the US and German 10-year yields ended the lower by less than 1bp. Intra-Euro-zone spreads widened some in the semi-core, but the moves were quite limited outside the semi-core.
Slight upward pressure on yields is likely to return today.
The Eonia overnight rate fixed at 6bp on the first day the ECB’s -10bp deposit rate applied. The rate is set to fall further next week, when the ECB discontinues the SMP sterilizations, but should stay marginally in positive territory.
Equity prices declined on both sides of the Atlantic, but from high levels. S&P 500 retreated by 0.35%. Also Asian equities are trading lower this morning, but Europe is set to open slightly higher.
Fed compromise to mean an earlier rate hike?
Reuters writes a story arguing that a possible trade-off between opposing camps at the Fed about what to do with the central bank’s huge balance sheet would entail an earlier interest rate rise. Considering that the large security holdings of the Fed have been estimated to amount to 200-400bp of easing via the Fed funds rate, such a trade-off would make a lot of sense. However, the pace of the hikes is actually more interesting than the actual timing of the first increase, and the large balance sheet of the Fed argues more need to raise the Fed funds rate, as the economy recovers. As the market is currently pricing in less tightening compared to even the rather dovish path implied by the FOMC median, with a rate of close to 1.80% at the end of 2016, rate expectations have plenty of room to increase.
Syndicated issuance picked up – Spain to launch a new 10-year benchmark
Spain announced yesterday it would launch a new 10-year EUR benchmark, maturing on 21 October 2024. The launch will take place today, and should see strong demand once again. In addition, the Spanish Treasury will offer switches from three bonds maturing in 2015 into the new benchmark.
France, in turn, priced its new EUR 3.5bn 2030 inflation-linker at 20bp above OATei July 2027, with order books reported at close to EUR 6bn. Finally, the European Financial Stability Facility priced its new 3-year benchmark at 8bp below mid-swaps, tighter compared to initial guidance, while order books totalled more than EUR 7.5bn.
US retail sales bad news for bonds
The highlight in today’s calendar will be the US May retail sales report at 14:30 CET. The numbers should have a more positive message to convey after the disappointing April data, which should put more pressure on bonds. Weekly jobless claims will be out at the same time.
In the Euro zone, April industrial production will see daylight at 11:00 CET.
New Italian 7-year bond and US 30-year auction
Italy will auction a new 7-year benchmark today for EUR 3 to 4bn, while it will also re-open its 3-year benchmark for EUR 3 to 3.5bn and the 30-year one for EUR 0.5 to 1bn. This week’s US benchmark auctions, in turn, will be concluded by the USD 13bn 30-year bond offering.
Nordea