Long US and German bond yields edged higher after the better than expected US payrolls increased again the bets that the US economy is still on track and the Fed will continue tapering as planned.
The US 10-year Treasury yield shot up by 10bp to 2.82%, the highest level since late January, but settled slightly below 2.8% at the end of the day. The German counterpart ended the day almost unchanged after rising 5bp after payrolls.
However, the rise in yields is likely to stay short lived this time around as the Chinese data and the continuing tensions in Ukraine increase the safe haven bid today. In addition, the already disappointing Japanese Q4 GDP figures were revised downwards this morning increasing the doubts over the success of Abenomics.
Asian equity markets are clearly lower today setting a cautious tone for today. The German Bund yield and the US Treasury yields should move lower today.
China pressures risk sentiment today
Chinese exports plummeted 18 % from last year in February when the market was expecting a growth of almost 7 %. Imports increased by 10.1%, faster than expected. Even though the figures were likely distorted by the lunar holiday and the over-billing seen in the beginning of the last year, the data will put pressure on risk sentiment today.
Chinese yuan slid after central bank cut the currency’s fixing by 0.18% to the weakest level since the beginning of December. As China continues financial reforms, yuan development is no longer a one-way street.
Raised outlooks for the Netherlands and Belgium
Moody’s raised the outlook on the credit rating of the Netherlands (AAA) to stable from negative. Moody’s cites the highly-competitive and diversified economy and notes that the domestic vulnerabilities have peaked.
Moody’s also raised the outlook on the credit rating of Belgium (Aa3) to stable from negative. Outlook was raised due to receding risk that contingent liabilities from banking sector will crystallize onto government balance sheet.
Payrolls confirm: tapering is here to stay
Better than expected US non-farm payrolls should ease recent concerns about the strength of the US economy. Payrolls came out at 175k when consensus was at 149k and our estimate at 130k. Two prior months were revised upwards by a modest 25k. Unemployment rate rose slightly to 6.7%, mainly due to increase in the labor force.
Especially now after the payroll numbers, Fed is likely to continue its tapering plan as the bar seems high for changing the course. Hence, we expect Fed to continue tapering its bond purchases by USD 10bn at the 18-19 March FOMC meeting. Strengthening of the economy and the Fed taper will leave space for the long rates to edge up longer out. Read more on the payroll numbers here: https://nexus.nordea.com/#/article/4724
LTRO paybacks on the rise again
Banks are paying back 11bn euros of the ECB 3-year long-term refinancing operations this week. After no action from the ECB last week, increase in paybacks would add pressure on the liquidity situation. As markets are not likely to start pricing in more measures from the ECB in the near term, short euro rates have room to creep higher.
Higher repayments were also reflected on the euro that rose to highest level since 2011 against dollar prior to better than expected non-farm payrolls.
Light macro calendar, some auctions on the pipeline
After last week’s heavy news flow calendar looks rather limited this week. Euro area industrial production is on the radar on Wednesday, US retail sales on Thursday and US consumer confidence (Michigan) on Friday.
China is set to report figures for new lending and money supply somewhere during the week and urban investment, industrial output and retail sales on Thursday.
Talks on European banking union and how to wind down failing banks are set to continue this week. Pressure to find a solution is high as time is running short due to approaching European elections.
The Netherlands is on the market on Tuesday with 3-year bonds, Germany on Wednesday with 2-year bonds and Italy with medium and long term notes on Thursday. Ireland holds its first bond auction on Thursday with indicative size of 0.5-1.0bn euros. Details from Ireland and Italy are expected today.
The US is scheduled to auction $30bn in three year notes on Tuesday, $21bn in 10-year debt on Wednesday and $13bn in 30-year bonds on Thursday.
Nordea