German bonds initially continued in a rallying mode yesterday, but gave up the earlier gains later. The 10-year yield ended the day with limited changes, while shorter yields rose a tad. Intra-Euro-area spreads widened mostly some.
US Treasuries performed better, and the 10-year yield tumbled by another 4bp. Still, the US yield remains around 20bp higher compared to the start of this month.
Yields are likely to creep higher today, but not bigger losses for bonds should be in store.
Equities took a beating yesterday, especially in Europe, where e.g. the Stoxx 600 plummeted by 1.38%. In the US, S&P 500 limited its losses to 0.58%. Asian markets are trading mixed this morning, while Europe is set to open down.
Liquidity impact of the first TLTRO rather muted
Demand at the ECB’s main refinancing operation was around EUR 15bn lower compared to the maturing amount. Coming after the EUR 20bn 3-year LTRO repayment, the numbers mean that the net liquidity effect of the EUR 82.6bn first TLTRO will end up being even smaller. Another piece of the liquidity puzzle will be revealed today in the form of the 3-month refinancing operation allotment at 11:15 CET, but this is unlikely to change the picture materially (only EUR 10.4bn will mature).
Fed’s Bullard still sees the Fed could move sooner rather than later
The Fed’s Bullard (non-voter) said he thought it was premature to try to remove the reference to considerable time from the Fed’s statement, while the QE programme was still running, and argued a more natural juncture for doing so would be in the October meeting, when QE was projected to end. He repeated his own forecast of the first hike taking place around the end of Q1 2015, implying he thinks that the Fed can still make a move rather early despite leaving its forward guidance unchanged at the September meeting. Data developments will be important, especially inflation and wage data.
Euro-area PMIs down again – US doing much better
Euro-area PMIs retreated some more in September, though the moves were rather marginal. The composite output PMI fell from 52.5 to 52.3, which marked a 9-month low. The German composite index increased slightly on the back of better services component, but another fall in the German manufacturing PMI from 51.4 to 50.3 was worrying. The French composite output PMI retreated from 49.5 to 49.1.Another fall in confidence was not welcome, and continues to illustrate that the risks for the Euro-area economy remain on the downside.
In the US, the preliminary Markit manufacturing PMI stayed at a high 57.9, which is the highest reading since April 2010 and pointing to a strong US manufacturing sector.
German Ifo and more Fed speeches ahead
The German Ifo index is set to post another fall today at 10:00 CET, strengthening the message from yesterday’s manufacturing PMI that the German economy continues to lose momentum.
In the US, September new home sales will be released at 16:00 CET, but additional Fed speeches look more interesting. Mester will speak at 18:05 CET and Evans at 19:00 CET.
New Dutch 5-year benchmark and US auctions
The Netherlands will sell a new 5-year benchmark via the Dutch Direct Auction today. The 15 January 2020 bond will bear a 0.25% coupon and see an initial size of at least EUR 4bn. Initial spread guidance was put at 15-18bp over the German DBR 3.25% Jan 2020.
In the US, USD 13bn of 2-year floating-rate notes and USD 35bn of 5-year notes will be sold.
Nordea