Forex - Australia Flows: Bonds bid as trade tariffs returns to the headlines

 07:14 (GMT) 11 Jul

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Australia Flows: Bonds bid as trade tariffs returns to the headlines (0101-BZNF-C01)

Trump raised the trade war wager with the announcement of a list of $200bn in Chinese imports due this week, sparking risk-off sentiment in the market. Yield broadly lower and curve bull steepens, though impact was modest on the lack of follow-thru bond buying. 3s -3.4bps to 2.04% and 10s -2.4bps to 2.61%. ASX down 0.68%, closed at 6215.60. Westpac consumer confidence rise 3.9% in July from +0.3%. Home loans for May increases 1.1% from -0.9% previously.

Forex - US Bond Flows: Higher US yields on firmer equities may put this week's US 10y and 30y supply in the spotlight

 13:15 (GMT) 09 Jul

US bond yields rise ahead of the US open as stocks gain in Europe following a positive trading session in Asia. 10y UST yields trade 3bp higher 2.85% with the US 2s10s curve steepening by 1bp to ca. 29bp. With no major data release expected for today (only the May consumer credit data is due to be released in the US later in the day), the move higher in yields seems to reflect risk-on in global markets spurred by a positive close by US equities on Friday and a reversal of safe haven flows into UK Gilts after the UK government formalised a soft Brexit proposal which nevertheless needs to withstand internal divisions within the Tory party and upcoming negotiations with the EU.

With equities rebounding as investors return to add risk following recent equity gyrations amid trade skirmishes between the US and its trade partners, we expect this week's supply of 3y and 10y notes and 30y bonds for a total of USD 69bn vs. USD 40.2bn redeeming to become a significant near term market driver as investor may also be re-assessing implications of last week's stronger than expected June payrolls and the upbeat assessment of the US economy by the Fed in its June FOMC meeting minutes released last week, booth likely to be behind last week's positive US equity close.

Forex - Eurozone Bond Flows: Hawkish remarks by ECB officials likely to put further upside pressure to Bund yields, steepening Eurozone yield curves; Greece and Portugal join the rally by the periphery

 12:06 (GMT) 09 Jul

Speaking in Zurich, Austria CB governor Nowotny suggests that the ECB is about to achieve its goals and remarks that low rates could result in bubbles in asset markets. He also cautioned about negative rates, suggesting they should be applied only when needed, and called for term structures to normalise as a 'certain steepness' is important for the economy.
Mr Nowotny's statements may also be contributing to a re-steepening of the yield curves in the Eurozone, especially at longer maturities, as marekt participants re-assess the likelihood and impact of reinvestment of principal redemptions by the ECB into longer dated bonds which so far have supported the long end.

Also, ECB board member Coeure indicated that the ECB's exit path from its extraordinary monetary policy stimulus is not being challenged by an escalation in trade tensions, with no evidence yet that the recovery in the Eurozone is being derailed by trade developments, especially with regards to business confidence, suggesting that last June's policy decisions by the ECB already took trade issues into account.

The increasing flow of hawkish statement by ECB officials may point at a significant change in rhetoric by the ECB following last month's policy decision which could soon begin to translate into an upside pressure to Bund yields given the low levels where 10y Bunds are currently trading

With regards to the periphery, Greek bond yields have accelerated lower in the late morning, with 10y GGBs richening by 5bp to 3.835% and 5y and 7y GGBs richening by 9bp and 6bp, respectively to 2.845% and 3.34% on the possibility of Greece coming to the market soon as Greece's Finance Minister Euclid Tsakalotos plans to meet US and Asian investors to convince them to invest in Greek assets after last June's Euro group agreement. Portuguese bonds are also performing now on the back of BTPs and GGBs after an initial cheapening in view of Wednesday's OT supply.

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