After some intraday volatility, German yields ended yesterday slightly lower. The 10-year yield edged lower by around a bp. In the US, the rise in yields finally continued, but the moves were rather modest, and the 10-year US yield closed higher by 1bp.
Intra-Euro-area spreads continued to feel clear widening pressure across the board. 10-year Italian and Spanish spreads vs Germany expanded by some 7bp, while in the semi-core names the widening was 2-4bp. The widening pressure on spreads is likely to continue today.
With geopolitical tensions receiving more focus again after new sanctions on Russia (see more below) and expanded operations by the US against the Islamic State, bonds are set to see some performance today ahead of the weekend.
Equities ended slightly lower in Europe, somewhat higher in the US yesterday. Asian markets are trading mixed this morning, while Europe is set to open a bit higher.
Another round of sanctions on Russia – countermeasures awaited
The EU finally decided yesterday that another round of sanctions against Russia would be implemented today. The US will follow today. Russia has also said it will respond with countersanctions, raising the economic costs of the conflict. Even though the ceasefire agreed for Ukraine has led to most of the fighting to stop, this conflict remains far from resolved, and the economic consequences it will have on the already struggling Euro-area economy present yet another obstacle for recovery.
Draghi calls for government guarantees to boost the ABS purchases
The ECB’s Draghi called for governments to do their part to support a recovery. He argued the regulatory environment should be made more favourable to economic growth, while companies should have access to more diversified sources of funding. He gave special importance to the development of the ABS market, and called on governments to give guarantees to support lending to small and medium sized enterprises. Bloomberg reported earlier in the week that France and Germany would reject the suggestion of government guarantees.
Vice-President Constâncio, in turn, said there was no proposal for doing QE in the September ECB meeting, even though such a programme was discussed. He added that while such a programme could certainly not be excluded, it is something the ECB hoped not to be forced to do. At least for several Governing Council members, the same probably applied to the measures announced in September (and June).
US retail sales to show growth picking up
The highlight in today’s data calendar will be the US August retail sales report at 14:30 CET. After disappointing both in June and July, sales should have done much better in August, which would put some more upside pressure on bonds yields. In other US data, preliminary September University of Michigan consumer confidence will be released at 15:55 CET.
In the Euro area, the ECB’s Weidmann will speak at 10:00 CET, while July industrial production numbers will be released at 11:00 CET. In addition, EU finance ministers and central bankers will meet.
On the ratings front, S&P will review its rating on Greece, while Moody’s has a chance to reconsider its views on Ireland.
Nordea