German 10-year yield reached for levels below 1% again. Eonia slipped to new all-time lows and negative fixings are getting closer. US data just good enough. Today Fed minutes on the dovish side. Lower inflation eases pressure on the BoE to act. Pretty silent in the issuance front.
German Bunds remained bid on Tuesday and the 10-year yield reached for levels below 1% again. Closing at 1% the all-time lows of 0.96% recorded on Friday are only a touch off.
In the US the 10-year Treasury yield inched only slightly higher to 2.4%. The US rates were lifted by the better than expected housing data, but the move was constrained by the still modest increase in the US inflation.
In Euro area the overnight interbank lending rate Eonia slipped to new all-time lows at 0.005%. Slipping Eonia rate reflects markets pricing in continued easy monetary policy from the ECB as the economic outlook is getting hammered by the ongoing geopolitical tensions. It is worth noting that negative fixings are getting closer now.
Today markets are looking at Fed and BoE minutes. Long rates should stay at recent trading ranges.
US data just good enough
In the US housing starts rebounded in July and increased by 15.7%, well ahead of expectations. Housing starts had declined for two months. In addition, the building permits jumped by over 8%.
US consumer prices in turn came out as expected and dipped to 2.0% with the core inflation at 1.9%.
With positive US housing data and modest increase in inflation, there is no reason for the Fed to hurry yet with rate hikes but the investors are content with the economy doing better.
Fed minutes on the dovish side
Today markets are looking for signs of Fed future policy path from the July meeting minutes. Although the FOMC statement was more optimistic on both employment and inflation, the minutes are likely to reaffirm the continued, although slightly diminished, dovish signals from the Fed.
Until the committee sees clear evidence of higher wage increases, it will continue to normalize policy slowly.
The minutes are unlikely to change the picture of the Fed outlook and the message remains on the dovish side. Yellen is speaking later this week in the famous Jackson Hole conference which could provide some more colour on her thoughts.
Lower inflation eases pressure on the BoE to act
Yesterday the UK inflation printed well below expectations paving the way for the BoE to keep rates at low levels for longer than expected. Consumer prices fell to 1.6% YoY from July 1.9%. Drop was mostly driven by sluggish clothing prices.
As the previous MPC Minutes highlighted, the first rate hike is dependent on incoming data. Hence, the easing inflation will help BoE stay more comfortable keeping its easy monetary policy stance well into next year limiting the potential for long rates rising in the short term. Today the focus on the BoE minutes is certainly on the wording on spare capacity and the lack of wage pressures.
Pretty silent in the issuance front
Slow summer speed keeps the issuance volumes subdued. Germany auctions today new two year notes worth 5bn euros with a zero coupon.
Nordea