German bond yields edged marginally higher yesterday in a narrow trading range, while US yields closed the day a bit lower. The German 10-year yield climbed by around half a bp, while the corresponding US yield fell by some 1bp.
Core bond yields are likely to continue to trade in a rather narrow trading range today, with a small downward bias in yields. It is worth remembering that August has historically often been a good month for bonds (see the graph below). E.g. the German 10-year yield has fallen by more than 11bp, on average, in August during the Euro era. The seasonal pattern thus looks supportive of bonds going forward.
Intra-Euro-zone bond spreads narrowed across the board in the aftermath of the Portuguese bank rescue, implying the demand is still there. The Portuguese 10-year yield vs Germany contracted by 8bp, while Spanish and Italian 10-year bonds outperformed Germany by some 7bp.
Despite a small rebound in Portuguese equities, European markets in general failed to record gains, though the daily loss was rather modest (0.23% for the STOXX 600). In the US, S&P 500 did better, ending the day higher by 0.72%. Asian markets are trading mostly somewhat lower this morning, while Europe is set to open slightly higher.
US lending environment continues to be supportive of growth
The Fed’s July Senior Loan Officer Survey on bank lending practices showed a continued easing of lending standards for many types of loan categories amid a broad-based pick-up in loan demand. Regarding the level of credit standards, the standards for most categories of commercial and industrial loans were either easier than or near the mid-points of their ranges over the past decade, and the same applied to commercial real estate loans. However, for most types of loans to households, lending standards were at least somewhat tighter than the mid-points of the banks’ longer-term ranges.
The lending survey results suggest that the credit environment remains supportive of growth in the US. However, the results also imply the availability of credit may be a bigger constraint on the US housing market than it is for corporate investment, something that the recent developments in these areas support.
Day of services confidence – Austria to sell bonds
Today’s data calendar centres on indicators of service-sector confidence. The final Euro-zone services PMI will be released at 10:00 CET, UK services PMI at 10:30 CET and the US non-manufacturing ISM at 16:00 CET. In addition, Euro-zone June retail sales will be out at 11:00 CET and US July factory orders at 16:00 CET.
Elsewhere in the calendar, the ECB will release the results of its latest main refinancing operation at 11:10 CET.
On the issuance front, Austria will re-open bonds maturing in 2019 and 2024 for a combined EUR 1.1bn.
Nordea