US bonds felt some pressure from the 10-year auction, but yields fell back after the release of the Fed minutes. At the end of the day, the moves were rather limited: the US 10-year yield ended the day lower by less than a bp, while 2-5-year yields fell 2-3bp. German yields edged higher by around a bp.
Intra-Euro-zone bond spreads continued to widen outside the semi-core, led by Portuguese spreads, which jumped more than 10bp vs Germany in the 10-year sector, though the sell-off moderated during the day. Portuguese bonds were hit by more worries around the second largest bank in the country on the back of reports that the parent company of the bank had missed debt payments. Such worries are likely to keep Portuguese bonds under pressure and contribute to further widening in spreads also in general.
Core bonds should remain supported today.
Equities found some ground again, at least outside Portugal and Greece. In the US, S&P 500 rebounded by 0.46%. Asian equities are trading mostly with small gains this morning, at least outside Japan, where a huge 19.5% m/m drop in the volatile machinery orders in May, the biggest plunge in more than 30 years, has dented sentiment. Chinese June export and import data, in turn, were both somewhat weaker than expected, but the y/y growth rate picked up especially for imports.
Also the Fed concerned about depressed volatility
Fed minutes from the June meeting showed that the asset purchase programme is set to end after the October meeting, while many participants agreed that ending the reinvestments of maturing securities should take place only at the time or after the first rate hike. When rate hikes do start, many participants though it would be best for the Fed to continue to announce a target range for the fed funds rate instead of an exact level. This implies the huge amount of liquidity would keep the effective fed funds rate clearly below the rate of interest on excess reserves (IOER). The minutes further illustrate that the Fed is in no hurry to start tightening policy.
The minutes stated participants also discussed whether some recent trends in financial markets might suggest that investors were not appropriately taking account of risks in their investment decisions. In particular, low implied volatility in equity, currency, and fixed-income markets as well as signs of increased risk-taking were viewed by some participants as an indication that market participants were not factoring in sufficient uncertainty about the path of the economy and monetary policy. There are thus also some concerns within the Fed that bubbles may be forming.
Uneventful BoE and US jobless claims ahead
Today’s calendar offers the monetary policy announcement from the Bank of England, but as no changes are in store, there should not be any statement out either. In the US, weekly jobless claims will be out at 14:30 CET, while the Fed’s George will speak at 19:15 CET and Fischer at 22:30 CET.
Today’s Euro-zone data offerings include French May industrial production numbers & June inflation at 8:45 CET and Italian industrial production for the same month at 10:00 CET.
New Greek 3-year bond a lot of other supply ahead
Greece mandated the leads for its new 3-year benchmark yesterday, and pricing is expected to take place today. The new issue should see plenty of demand, and order books could easily rise to double-digits again.
On the auction front, Ireland will re-open its March 2024 bond for EUR 0.5bn, while Spain will tap its 2024 inflation-linker. This week’s US benchmark auctions, in turn, will be concluded by the USD 13bn 30-year bond offering.
Nordea