German bond yields edged a bit lower yesterday, but the moves were limited and trading volumes depressed by the US holiday. 2-year German government yields were joined by Dutch, Finnish, Austrian and French 2-year bonds in negative territory. Intra-Euro-zone bond spreads mostly widened slightly.
The trend in the German 10-year yield continues to point clearly lower, and new lows are likely ahead in the near future. That said, we could see a small uptick in yields today on the back of positive US data (see more below). Also the US 10-year yield has mostly fallen lately, but the downtrend has been much weaker and yields did not fall to year-to-date lows until August (while German yields have virtually fallen all year).
European equity markets ended yesterday mostly with small gains, and many Asian markets are trading higher this morning. European markets are set to open slightly higher.
Tide turned in Ukraine again – more sanctions already in prices
After clear advances for the Ukrainian government forces a couple of weeks ago, Ukrainian Defence Minister said yesterday the army would stop to try to remove the separatists from the east of the country, and would instead move to a defensive strategy against what he dubbed full-scale invasion of Russian forces. President Poroshenko, in turn, accused Russia of conducting direct and undisguised aggression against Ukraine.
The conflict shows few signs of easing, and more sanctions on Russia are in the pipeline. At this point, the next round of sanctions should already be in prices, at least as far as core bond markets are concerned. Still, the continuing tensions are one of the reasons keeping bond yields at depressed levels for now.
Spain extends its sovereign curve into the 50-year sector
Spain issued EUR 1bn through a private placement in a new 50-year bond. The 4% October 2064 is now the longest EUR government bond outstanding, though the size of the bond is much more modest compared to what e.g. France and Austria have issued in the maturity segment.
Irish manufacturing gaining momentum
The manufacturing PMI data for August showed the Irish index reaching a respectable level of 57.3, the highest in almost 15 years. The numbers thus suggest the good performance the Irish economy delivered in Q2 continued in the third quarter of the year. Most other countries are faring much worse, as is the Euro-area economy as a whole: the French index hit a 15-month low, the Italian one a 14-month low, the German sentiment is at its lowest in 11 months and the Spanish index at its weakest in 4 months.
US manufacturing sector continuing to pick up steam
The highlight in today’s data calendar is the US manufacturing ISM index at 16:00 CET. In light of the consensus forecast of a largely unchanged index, risks are clearly tilted towards a positive number. The upside pressure such a reading would put on yields is likely to remain limited, though, as geopolitical tensions are continuing and the bigger focus remains on possible signs of price pressures picking up.
Elsewhere in the calendar, Euro-area July PPI will be released at 11:00 CET, and the final August US Markit manufacturing PMI at 15:45 CET, while the ECB’s Knot will speak at 17:00 CET.
Nordea