global-bonds

 

US yields are firming up pre NFP, dollar to stay bid
US yields have been lifted this week by the double-positives of strong US data (especially yesterday’s services ISM) and also the potential, however improbable, for ECB tapering. The US 5Y5Y inflation swap is pushing above 2% again and it seems that the market and the Fed is becoming increasingly comfortable with a December rate hike. There is no US data to speak of today and instead the global focus, away from the ECB, will be on the G20 meetings which take place this week-end. Here there will be pressure on Finance Ministers to offer fiscal stimulus. Press reports suggest Germany may have a very modest €6bn tax cut on offer next year, but US Treasury Secretary Lew, speaking today at 1430CET is hamstrung by the Nov 8th Presidential election. In all we expect the dollar to stay bid, even though US yields look unlikely to push much higher today. DXY could edge up to 96.60 if the EUR softens today.
ECB communications today to downplay any thoughts of tapering
The ECB has a couple of opportunities to try and put the tapering genie back in the bottle today. The first is the 1330CET release of the minutes of the Sep 8 ECB meeting. Typically these minutes have not been market movers, but scrutiny of today’s release may prompt a re-assessment that the next move from the ECB is more likely to be an increase not a decrease in asset purchases. The second opportunity is a speech from Chief Economist Peter Praet at 1515CET. His scheduled speech is on Europe’s redesign, but he could well make some remarks to redress the tapering story – a story which has generated an unwelcome tightening of financial conditions. We see risks that the EUR hands back some of this week’s taper-inspired gains. And with German-US yield spreads at new wides, favour EUR/USD pressing support at 1.1130/50 today.

 

yields