- US equities are hovering around all-time highs
- Core yields are grinding higher while spread compression continues in peripherals
- Focus today on Fed speakers and in Scandinavia on Swedish unemployment figures
It has been a calm overnight session with comments from the Fed’s Evans the only relevant news. Evans (voter, dove) last night said that “I’m optimistic that the labour market has been doing much, much better and that unemployment is going to continue to go down,” and that “currently we have the appropriate monetary policy in place.” He also said that “he has tried to resist talking about Fed tapering”. Tonight, the Fed’s Bullard (voter, dove) and Dudley (voter, dove) will be speaking, and tomorrow we have both the release of the FOMC minutes and Bernanke speaking. The U.S. treasury market will be sensitive to any signals on the timing of a potential QE tapering. Last week the Fed’s Williams suggested that the Fed could reduce its purchases as early as this summer.
The positive market sentiment continued as we entered the week. The S&P500 ended the session broadly unchanged around an all-time high. Year to date, the index is up by around 17%. Asian stocks are trading with no clear direction this morning.
The sell-off in U.S. Treasuries that was fuelled by Friday’s better-than-expected consumer confidence data was halted overnight. U.S. Treasuries have traded sideways, leaving the 10Y yield broadly unchanged from Friday’s session at 1.96%.
The yield on German 10Y Bunds rose 5bp yesterday, reflecting mainly a catch-up to the 9bp jump in the U.S. counterpart on Friday. Tthe spread compression continued in the eurozone. 10Y Spain and Italy tightened 5bp relative to Bunds. The strong performance continues in spite of the sharp increase in issuing activity. This week Spain will be tapping the market in 3Y, 5Y and 13Y. Despite the fact that more than EUR20bn was issued in Italy and Spain last week, the spread tightening continued.
In FX markets the JPY weakened slightly in this morning’s trade with the USD/JPY trading at around 102.50. Yesterday, after Japanese Minister of Economy said that further JPY weakening may be negative for Japan, the yen depreciation trend could see a temporary halt as markets re-assess BoJ policy. We see the USD/JPY trading sideways in the near future, but see upside still in the longer term. The yield on 10Y JGBs increased 2bp in this morning’s trade.
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