Yields continued to head higher yesterday. For German bonds, the moves ended up being limited, with the 10-year yield up by half a bp, but the US 10-year yield rose another 4bp. The US 10-year yield has now risen for five days in a row, leaving it at its highest level since early August. Clearly, there are worries the Fed will take a more hawkish stance at its meeting next week. The Eonia overnight rate, in turn, made a new low at -2.4bp.
Intra-Euro-area spreads continued to widen, and especially Spanish bonds felt more pressure. The recent moves should be seen as profit taking, not a reversal of the trend.
Safety-related demand for bonds has receded somewhat, as geopolitical concerns have shown some signs of easing. Yesterday, Ukrainian President Poroshenko estimated Russia had withdrawn most of its troops from Eastern Ukraine, supporting hopes that the cease-fire agreed last week would hold. The EU, meanwhile, has still not decided whether to impose more sanctions on Russia. A poll yesterday, in turn, showed the no-camp in a rather clear lead in the question of Scottish independence. Nevertheless, core yields are likely to see some falls today after the recent rise.
European equity markets ended yesterday close to flat, while US equities saw a small rebound (S&P 500 up by 0.36%). Asian markets are trading mostly higher this morning, and also Europe is set to open up.
Chinese August inflation, released earlier today, fell from 2.3% y/y to 2.0%, the lowest in four months and below expectations. The limited inflation pressures leave the authorities room to support the economy with stimulus measures, as needed.
France needs yet more time to reduce its deficits
French Finance Minister Sapin warned France would not hit its 3% deficit target until 2017, two years later than the previous goal, which had already been delayed. The higher numbers were blamed on slow growth, but the goal of cutting public spending by EUR 50bn over the next three years was maintained. It will be interesting to see, what the new Commission will have to say about these plans, while higher French deficits were probably not what the ECB meant, when it referred to more growth-friendly fiscal consolidation. The recent news is not hugely surprising, as France has never really been among the Euro-area countries knows for fiscal credibility.
US jobless claims and Draghi’s speech ahead
The highlights in today’s calendar are US jobless claims at 14:30 CET and the ECB’s Draghi’s speech at 21:00 CET. In addition, final August inflation data for Germany will be out at 8:00 CET and French August data at 8:45 CET.
Italy and the US active on the issuance front
Italy will re-open 3-, 7- and 15-year bonds for a combined EUR 5 to 7bn today. The 2017 and 2021 bonds will be tapped for EUR 2 to 2.5bn each, while the 2030 bond will be sold for EUR 1 to 2bn. In the US, this week’s benchmark auctions will be concluded by the USD 13bn 30-year bond sale.
Nordea