The German 10-year yield briefly visited the sub-0.80% territory again yesterday, the lowest in almost a month, but finally ended the day at around 81bp, down 2bp for the day. The US 10-year yield, in turn, ended up by some 1bp. Intra-Euro-area bonds widened.
German yields are set to head somewhat higher this morning, but further geopolitical tensions should keep bonds supported and yields are likely to head lower again during the day.
European equities saw more notable selling pressure for a change and the Stoxx 600 took a beating of 1.13% (Italian equities down by almost 3%). US equities fared better, and S&P 500 closed almost flat (down by 0.07%). Asian equities are trading mixed this morning, but Europe is set to open up.
Chinese October economic data, released this morning, mostly came in slightly below expectations and showing modest slowdown from the September growth rate.
Italian electoral reforms take a step forward
Italian Prime Minister Renzi and Mr Berlusconi issued a joint statement yesterday, announcing a deal on an electoral reform that would guarantee extra seats for the winning party, as long as it reached at least 40% of the vote. The idea is to make it easier to secure a majority that makes it easier to govern. The agreement increases hopes that the current and former prime ministers could also agree on some economic reforms that Italy desperately needs. Mr Renzi’s agenda sounds promising, but he has not come even close to implementing the reforms he set as targets, when coming to power, another illustration of how hard it is to find support for reforming the Italian economy.
Covered bond issuance picking up
The Spanish Santander sold a total of EUR 3bn of 10- and 20-year covered bonds yesterday, marking the largest covered bond sale since the ECB started buying. The ECB’s purchase programme thus appears to be having an effect on issuance volumes, but the existing cover pools and the limited amount of new lending will still put limits on how much can be issued going forward.
Falling inflation expectations in the cards again?
The ECB will release the latest Survey of Professional Forecasters at 10:00 CET today. The main focus will centre on the longer-term inflation expectations, as the ECB continues to monitor these quite closely. In the previous survey, the average longer-term inflation forecast (five years ahead) edged higher from 1.8% to 1.9%. It has moved in a range of 1.8 – 2.0% throughout the history of the survey, which makes sense: in the longer run, the best guest should be around the central bank’s inflation target. Another fall in these expectations would add to ECB easing expectations, but at most, the longer-term expectation is only likely to edge back to 1.8%.
In terms of economic data, final October German inflation numbers will be released at 8:00 CET, French data at 8:45 CET, US weekly jobless claims at 14:30 CET and the JOLTS survey at 16:00 CET.
In central bank speeches, the ECB’s Lautenshläger will speak at 9:00 CET, the Fed’s Dudley at 9:30 CET, the ECB’s Cœuré at 14:15 CET, the Fed’s Plosser at 18:30 CET, the Fed’s Yellen (welcoming remarks, no Q&A) at 18:45 CET and Kocherlakota at 21:30 CET.
In addition, EU and US representatives are reportedly set to discuss possible further sanctions on Russia due to the Russian role in the Ukrainian conflict.
Lively issuance activity continuing
Also today’s calendar features a number of government bond auctions. Spain will re-open its 2024 inflation-linker, while Italy will re-open its 3-year benchmark for EUR 2 to 2.5bn, its 7-year one for EUR 1.5 to 2bn and the 15-year one for EUR 1 to 1.5bn.
In the US, this week’s benchmark auctions will be concluded by the USD 16bn 30-year bond offering.
Nordea