Bond yields rose on both sides of the Atlantic yesterday, but more so in the US than in Europe, while the US curve continued to steepen. The US 10-year yield is approaching the upper end of its trading range from the past two months, while the German yield remains at a relatively lower level compared to its recent history. The rise in yields is still likely to continue today. Intra-Euro-zone spreads mostly widened.
Equities gained on both sides of the Atlantic, with S&P 500 closing higher by 0.70%, only just a new record high. Some profit taking from these levels looks likely today. Asian equities are also trading mostly positive this morning, and Europe is set to open further up.
Recovery in the US ISM index far from impressive
The US manufacturing ISM index continued to recover in March, rising from 53.2 to 53.7, but this still left the index clearly lower compared to the 56.5 seen in December. In fact, considering the big rebound in the production index from 48.2 to 55.9, as the weather improved, the increase in the headline could have easily been much bigger. New orders rose from 54.5 to 55.1, while the employment index retreated from 52.3 to 51.1, a 9-month low. Overall, yesterday’s numbers suggest that the manufacturing sector is rebounding after a weather-induced slump, but at a pace that is far from stellar.
The alternative Markit manufacturing PMI, in turn, fell from 57.1 in February to 55.5 in March, so the gap between the two indices is narrowing.
The return of Greece to the bond markets getting closer
There were more talks again yesterday that Greece would enter the bond market already in the next few months, something that is looking increasingly likely. Finance Minister Stournaras said market financing would form part of Greece’s efforts in plugging its financing gap for the next 12 months. Other Greek officials said the initial bond issue would have a EUR 2bn size and would be in 3- or 5-year bonds.
The Eurogroup yesterday concluded it considers that the necessary elements are now in place to launch national procedures with a view to pave the way for the approval of the next EFSF instalment of EUR 8.3 billion. The statement added that the programme is fully financed for the next 12 months, including by drawing on temporary sources of financing such as deposits of general government subsectors.
Greece thus continues to make progress, and the current market sentiment should make it very possible for Greece to find demand for its bonds. However, with only a wafer-thin majority for the government parties, while the country has now reached a public-sector primary surplus, the risk of Greece trying something else than following the path set by the troika is considerable.
US ADP numbers to offer guidance to payrolls
The highlight in today’s calendar will be the US ADP employment report at 14:15 CET. After weaker readings in January and February, March could mark a payback time and risks are tilted towards a positive surprise, which would put more pressure on bonds.
Euro-zone February PPI will be out at 11:00 CET and US February factory orders at 16:00 CET.
In central bank speeches, the Fed’s Lockhart speaks at 18:30 CET and Bullard at 22:00 CET.
Germany to sell 5-year bonds – a new linker out next week
Germany will re-open its 5-year benchmark today for EUR 3bn, a rather modest size for a German auction.
Germany also announced it intends to launch a new 15-year inflation-linker, maturing in 2030, next week. The initial auction size will be EUR 2bn, and the new bond will mark the longest German linker outstanding.
Nordea