Core bond yields initially performed further on Friday, but pressure emerged in the afternoon on the back of news that a famous bond fund manager was moving to another fund – something that will keep up volatility in the near term. German yields finally ended the day marginally lower, while US yields rose, the 10-year one up by 2.5bp. Intra-Euro-area spreads mostly widened outside the semi-core. In FX markets, the euro has continued to take a hit, and EUR/USD has fallen below 1.27 for the first time since late 2012.
Core bonds are likely to feel some pressure early today, but the looming quarter-end should keep bonds supported in general for now.
Equities rebounded, especially in the US, where S&P 500 climbed by 0.86%. Asian markets are trading mixed this morning, while Europe is set to open slightly down.
Catalan independence referendum still far from certain
Catalan President Mas called an independence referendum in the region for 9 November over the weekend. Spanish government is now likely to challenge the vote in the constitutional court. Mr Mas has implied he might call an early election instead, if the vote is found to be unconstitutional, but it will not be an easy decision. Spanish bonds should feel some pressure on the back of the uncertainty created by the Catalan question, but no bigger sell-off looks likely for now.
Fitch affirms Finnish rating and the stable outlook
The ratings agency Fitch affirmed its AAA rating with a stable outlook on Finland late on Friday. It said the rating was underpinned by a high-value-added economy, and strong political and social institutions, while Finland’s score on governance indicators was higher than even the AAA peer median. The agency continued the country has a strong track record of prudent fiscal policy management and economic policy implementation, and the general government sector enjoys a net asset position of just under 60% of GDP.
Fitch said developments that could result in downward pressure on the rating include a continued rise in the government debt-to-GDP ratio in the medium-term and a persistently low potential growth rate of the economy, affecting further the sustainability of the public finances. In other words, the risks Fitch mentioned are more of a medium-term in nature, suggesting the Finnish rating is not in any immediate jeopardy.
Moody’s will likely retain its stable outlook on the Finnish Aaa rating on Friday, while Standard & Poor’s is unlikely to downgrade Finland either at this point, when it will have its review date next week.
Big week ahead: ECB, HICP, payrolls…
This week’s calendar looks heavy again, as is usually the case for the first week of the month. Another softening in Euro-area inflation tomorrow will further underline that the ECB needs to provide stimulus, which will be detailed further on Thursday.
In the US, the manufacturing ISM index should remain at strong levels on Wednesday, while a clear rebound in payrolls growth is ahead on Friday.
German inflation and US personal spending on the agenda today
Already today’s calendar looks quite interesting. German inflation numbers for September will start flowing in from the states at 9:00 CET, and the preliminary national data will be out at 14:00 CET. Spanish numbers will be out already at 9:00 CET. Further soft numbers are in the cards. Also the Euro-area economic sentiment indicator at 11:00 CET will gather some interest.
In the US, the August personal spending report at 14:30 CET and the August pending home sales index at 16:00 CET will gather interest. In addition, the Fed’s Evans will speak at 15:00 CET and the ECB’s Visco at 18:00 CET.
Italy setting another rather busy issuance week in motion
This week’s bond auctions will start today with Italian offerings. The country will sell a 6-year floater for EUR 2.5 to 3bn, its 5-year benchmark for EUR 2 to 2.5bn and the 10-year benchmark for EUR 2.5 to 3bn. Later in the week, Germany will re-open its 10-year benchmark for EUR 5bn on Wednesday, while Spain and France will sell bonds on Thursday. France will offer bonds maturing in 2023, 2024 and 2027 for a combined EUR 7 to 8bn. Spain, in turn, will sell bonds maturing in 2020 and 2024.
Coupon and redemption payments from EUR government bonds are set to total just below EUR 11bn this week, stemming from Belgian bonds.
Nordea