Bonds took a beating and curves bear-steepened yesterday on both sides of the Atlantic yesterday, as ECB easing bets were pared and US data impressed (see more below). The US 10-year yield jumped by 8bp, while the corresponding move higher in the German yield was 5bp. Intra-Euro-area spreads widened some in the semi-core space, while Spanish and Italian spreads saw some narrowing.
German yields are set to open higher today, but bonds are likely to find support again during the day and further losses are likely to end up limited.
Equity markets generally ended yesterday with rather modest moves. Asian markets, in turn, are trading higher this morning, and also Europe is set to open slightly higher.
US manufacturing confidence continues to surge higher
Defying the weaker manufacturing confidence numbers seen in e.g. the Euro area and China, the US manufacturing ISM index continues to climb. The index hit a 3-year high of 59.0 (from 57.1 in July) in August, while the forward-looking new orders index jumped to 66.7, the highest in 10 years. The details were encouraging as well. The numbers imply the US economy is currently doing rather well, but for a more permanent market reaction, we need to see a strong payrolls report accompanies by signs of wage growth picking up on Friday.
Scottish independence race tightens
The pound felt some pressure yesterday, as the latest poll showed the no-camp lead narrowing to just six points in the Scottish independence referendum set for 18 September. A no-vote remains by far the most likely outcome, but more tight polls ahead of the vote would increase market nervousness, which would likely have some repercussions in the Euro area as well.
Waiting for bigger drivers later in the week
Ahead of more interesting data and events later in the week, today’s calendar offers only second-tier entries. Final Euro-area services PMIs will be released at 10:00 CET and July retail sales at 11:00 CET.
In the US, July factory orders will be out at 16:00 CET and the Fed’s Beige Book at 20:00 CET.
German 5-year benchmark and Finnish & Portuguese syndicated issuance
Finland announced yesterday it would launch a new 5-year USD benchmark, and initial price thoughts were put in the area of 1bp below mid-swaps. Portugal, in turn, is set to introduce a new 15-year EUR benchmark, maturing in the February of 2030. Portugal has not issued a 15-year benchmark since 2008, and the plans illustrate the current very receptive market environment.
On the auction front, Germany will sell a new 5-year benchmark for EUR 5bn.
Nordea