German bond yields initially continued to fall on Friday, and the 10-year yield almost touched the record lows of 1.13% from 2012, but yields then rebounded a bit towards the evening. The 10-year yield finally ended the day higher by around a bp. In the US, the moves were larger, and the 5-year benchmark yield jumped by 5bp, while the 10-year yield climbed by almost 4bp. Intra-Euro-zone spreads narrowed.
In the absence of more bad news, core yields could creep a bit higher today, but in the general the upside still looks limited in the near term, as risks remain the geopolitical tensions will only increase and the cash flow picture remains rather supportive.
European equities showed some signs of stabilization on Friday, with most indices ending the day close to flat. US equities, in turn, rebounded clearly, and S&P 500 advanced by 1.03%. US equities have faced some resistance around the recent highs, so conquering those levels will be a test for the positive momentum of US equities. Asian equity markets are trading mostly with rather small moves this morning (Japanese markets are closed).
Money market rates rise on higher LTRO repayments
After several weeks of lower numbers, the 3-year ECB LTRO repayments will surge to EUR 21.5bn this week. Brisker repayments will help to keep the Eonia overnight rate in positive territory for now, and short money market rates climbed on the news. Still, more liquidity will be in store in the autumn, which will keep the upside potential in short money market rates very limited.
More warnings on markets being too optimistic
This time it was the IMF’s Managing Director Lagarde, who warned markets were getting ahead of themselves. She said markets may too upbeat on Europe’s recovery, as the recovery remained fragile, quite modest and imbalanced. Such warnings have been heard before lately, implying the recent good performance of equity markets is raising clear worries. Her words were not a trigger for a correction lower in equity prices, though.
US inflation numbers and Euro-zone PMIs ahead
This week’s calendar has some interesting data to offer. In the US, the highlight will be the June inflation numbers tomorrow. Another upside surprise in core inflation would start to put some more heat on the Fed. In the Euro zone, July flash PMIs on Thursday have good potential to post a rebound and surprise positively. China’s flash July manufacturing PMI, in turn, will be out on Thursday as well.
Elsewhere in the calendar, US June existing home sales will be released tomorrow, BoE minutes on Wednesday, US June new home sales on Thursday, and the German Ifo, Euro-zone June credit numbers and the preliminary UK Q1 GDP data on Friday.
In addition, corporate earnings releases will continue, with e.g. 145 S&P 500 companies due to report during the week.
Today’s calendar looks very light.
Supply action easing – more coupon and redemption payments ahead
The supply pressure is subsiding for the summer already this week, as there are not that many auctions in store. Belgium will re-open bonds maturing in 2024 and 2026 for EUR 1.5 to 2bn tomorrow, while USD 15bn of 10-year TIPS will be sold in the US on Thursday.
Coupon and redemption payments from EUR government bonds will amount to around EUR 4bn this week, but a massive EUR 44bn will be in store next week. The negative net supply should thus continue to support the bond market.
Nordea