German yields ended the day marginally lower yesterday, but US yields jumped on the back of a disappointing 5-year auction (the lowest bid-to-cover in a 5-year auction since late last year). The US 10-year yield rose by 4bp, while the shorter end of the curve climbed slightly more. Intra-Euro-area spreads narrowed.
German yields are set to open slightly higher, but bonds should find demand again during the day.
Equity markets saw clear rebounds (S&P 500 up by 0.78%), and Asian markets are trading mostly higher this morning as well. Europe is set to open close to flat, though.
German outlook darkening further
The German Ifo expectations index fell further in September, decreasing from 101.7 to 99.3, the fifth fall in a row and leaving confidence below 100 for the first time since late 2012. German companies thus continue to lose faith in the future amidst many headwinds.
US new home sales surge
US new home sales surprisingly jumped by 18% m/m in August, bringing sales to their best level in more than six years. The monthly data can be volatile, but many other housing market indicators are also pointing to a housing market gaining momentum again. For example, existing home sales look set to increase further in the months to come, while the NAHB housing market index has surged to its highest in almost nine years.
Strong demand for the new Dutch 5-year benchmark
The Netherlands sold EUR 5.1bn of its new 5-year benchmark on the back of EUR 13.7bn of demand (within the final spread guidance). The final spread for the 0.25% Jan 2020 bond was 15bp over DBR 3.25% Jan 2020, which was at the tight end of the initial guidance of 15-18bp.
Central bank speeches and Euro-area credit data ahead
The ECB’s Draghi will speak again today at a conference at 9:00 CET. Although new signals are unlikely, the message should be dovish again. BoE Governor Carney, in turn, will speak at 14:40 CET, while the Fed’s Lockhart will have his turn at 19:20 CET.
On the economic data front, Euro-area August credit data will be out at 10:00 CET, US weekly jobless claims and August durable goods orders at 14:30 CET and the US Markit services PMI at 15:45 CET.
Italian and US auctions on the agenda
The busy issuance week will continue today. Italy will offer 2-year zero-coupon bonds for EUR 2.25 to 2.75bn and 10- & 30-year inflation linkers for EUR 1 to 1.5bn each. In the US, USD 29bn of 7-year notes will be sold.
Nordea