German bond yields ended yesterday with very limited moves, but US bonds rallied towards the evening despite positive economic data, as geopolitical tensions caused worries (violence in Iraq and Ukraine). The US 10-year yield fell by 5bp, and the US curve bull-flattened. Intra-Euro-zone spreads narrowed.
Yesterday’s market action was another reminder that bonds remain supported even at the current low yield levels, and the near-term upside potential in yields looks rather limited. Still, with the German 10-year yield near the support level at 1.30%, a small bounce higher looks likely, but yields are set to open lower to test the support.
US equities surrendered to losses yesterday, and S&P 500 closed lower by 0.65%. The big slump was seen in Dubai, where prices plunged by close to 7%, but the wider spill-over effects were quite limited. Asian equities are trading with losses this morning, and Europe will open lower as well.
New home sales surge in the US – consumers more confident
US new home sales jumped by 18.6% m/m in May to their highest level in 6 years, following the positive surprise seen in existing home sales earlier in the week. The pace of house price increases moderated, though, but prices develop with a lag, and the activity data suggests the housing market recovery is picking up steam again.
Conference Board consumer confidence, in turn, advanced to its best reading since early 2008. Also the job market indicators were encouraging. Even though the relationship between consumption and confidence is far from perfect, yesterday’s data add to evidence that the US recovery is picking up pace.
More evidence of wage growth and inflation picking up needs to be seen for yields to really start rising, but such development is likely to be in the cards later this year.
US durable goods and more ECB speeches ahead
Today’s calendar does not look hugely interesting. In terms of economic data releases, US May durable goods orders and the third release of Q1 GDP numbers will be out at 14:30 CET, while the June flash Markit services PMI will be out at 15:45 CET.
In the Euro zone, the focus will be on the ECB’s 3-month refinancing operation results at 11:10 CET, while the ECB’s Costa will speak at 10:00 CET, Linde at 14:00 CET and Weidmann at 15:00 CET. Especially Mr Weidmann’s comments will be interesting after Draghi clarified the message of low rates for even longer over the weekend.
Italian and US supply
Italy will offer 2-year zero-coupon bonds for EUR 2 to 2.5bn and its 2024 inflation-linker for EUR 0.5 to 1bn today. US auctions, in turn, will continue with USD 13bn of 2-year floaters and USD 35bn of 5-year notes.
Nordea