German bond yields posted a small rebound yesterday and the curve steepened a bit. The 10-year yield edged higher by 2bp, but remains depressed. The trend of narrower intra-Euro-zone spreads remained intact.
US Treasuries, in turn, pared their earlier losses after softer-than-expected inflation data (see more below), and the 10-year yield ended the day lower by around a bp.
Core yields are set to creep a bit higher early today, but support is likely to surface later in the day, pushing yields slightly lower again.
Equities had a broadly positive day, especially in Europe, where prices rose more than 1%. Also the Russian markets rebounded after six straight days of losses. In the US, the moves were more modest, and S&P 500 advanced by 0.50%. The index touched a record high earlier in the day, but could not close on highs, a further sign that resistance is felt at these levels, and prices could correct lower again today. Asian equity markets are trading mixed to higher this morning, while Europe is set to open slightly down.
EU finance minister did not agree on new sanctions on Russia, but the discussions will continue, and the list of Russian entities and individuals targeted will be expanded on Thursday.
US inflation pressures remain limited for now
US inflation excluding food and energy printed at a softer-than-expected 0.1% m/m in June after three months of brisker price increases. This pulled the y/y rate back from 2.0% to 1.9%, and implied the price pressures in the US remain limited. However, the 3m/3m annualized rate kept climbing, hitting 2.5%, the highest level since 2011, suggesting inflation is gradually building up momentum. The latest numbers illustrate the Fed is not in hurry to start tightening yet, but price pressures are gradually building.
At least some easing in the Euro-zone deflation threat
The EUR/USD fell below 1.35 yesterday and sank to its lowest level since late last year. This development will bring at least some consolation to the ECB, and act to dampen the worst Euro-zone deflation fears to some extent, as the euro has weakened lately on a broader front as well. Soft inflation remains a key driver of Euro-zone bond markets, and the July flash estimate out next week will gather a lot of attention again.
New 30-year benchmark from the EFSF
The European Financial Stability Facility launched a new 30-year benchmark for EUR 4b yesterday. Pricing took place at 31bp above mid-swaps, tighter than initial price thoughts in the mid-30s. Books were reported to have totalled in excess of EUR 6.1bn. The new bond was the first ever 30-year benchmark from the EFSF, and was met with strong demand. The bond completed the Q3 funding plan for the issuer.
BoE minutes and French business confidence ahead
Today’s calendar does not look hugely exciting. The French business confidence indicator at 8:45 CET will offer guidance ahead of tomorrow’s PMIs, while BoE minutes at 10:30 CET should still confirm a unanimous monetary policy decision.
In addition, the Q1 government deficit numbers for the Euro zone will be released at 11:00 CET, the ECB’s Praet will speak at 13:30 CET, BoE’s Carney at 13:45 CET, while preliminary July consumer confidence for the Euro zone will be out at 16:00 CET.
Nordea