Poor consumer confidence from the US coupled with lower then expected Business Confidence from Germany , lifted bonds across the curve and smashed the Euro in the process.
Bunds are now trading back at the 124 level, where as the Schatz is trading at its all time high, yielding below 1%, which is below the current rate.
Euribor and Short sterling yield curves are flattening further pretty much on a daily basis, as continuing worries over the global economy raises doubts that any tightening will occur any time soon.
Spreads along the curve continue to fall, as there is also chatter that we could actually get a rate cut from the ECB, which seems far fetched but never rule anything out.
The latest data add to the recent run of bad news. With German Ifo business sentiment falling in February and French consumer spending dropping in January, there is little hope that the euro-zone recovery will be renewed this quarter.
In the US the stagnation in core consumer prices over the past few months demonstrates that it is too soon to dismiss the threat of deflation. With the unemployment rate still close to 10% there is an awful lot of spare capacity and unit labour costs are in freefall. Money and credit have started to contract. All the evidence therefore points to a further decline in the annual rate of core inflation, probably to below 1% by the end of this year. Under those circumstances, it would be very surprised to see the Fed start to tighten monetary policy.
Subscribe to:
Post Comments (Atom)
Front month WTI Futures plunges to negative $37 as storage costs rocket
It was a move of epic proportions in the front month WTI Crude futures, the significance of which is not really known of yet, but was incre...
-
Much has been said about the new phone and the response on the surface seems exactly how you would expect it to be. Regardless of what Appl...
-
In the previous ECB meeting we had a split decision on whether to cut rates further or not but today Mario Draghi said the council decided ...
-
With the raft of poor data out this morning, we got some strong selling pressure in all parts of the curve. The 2s-10s spread hit an all tim...
Reports are hitting the wires regarding what the ECB will likely announce next week with respect to its refi ops in 2Q and beyond. The market seems to be picking up on the fact that full allotment will be extended into 3Q.
ReplyDelete11:05 24Feb10 RTRS-ECB LIKELY TO EXTEND LENDING UNLIMITED FUNDS AT
FIXED RATES INTO START OF Q3 AT MARCH MEETING-EURO ZONE MONETARY
SOURCES
11:05 24Feb10 RTRS-SOME AT ECB CONCERNED ABOUT KEEPING LONGER-TERM OPS
AT FIXED RATES FOR TOO LONG- EURO ZONE C.BANK SOURCES
11:05 24Feb10 RTRS-IMPORTANT TO PROVIDE INSTRUMENTS TO COVER 12-MONTH
TENDER MATURING ON JULY 1 - SENIOR EUROSYSTEM OFFICIAL
11:05 24Feb10 RTRS-KEEPING "SOME" OPERATIONS IN FULL ALLOTMENT MODE
OVER END OF Q2 IS ONE OPTION - SENIOR EUROSYSTEM OFFICIAL
11:05 24Feb10 RTRS-ECB DEBATE ON NEXT STEPS STILL AT EARLY STAGE,
DEPENDS ON HOW MARKET CONDITIONS DEVELOP- C.BANK SOURCES
11:05 24Feb10 RTRS-LIKELY THAT ECB WILL MAKE ONE-MONTH OPERATIONS
PERMANENT, BUT WITHOUT FLAT RATE - CENTRAL BANK SOURCE
I think the key debate for the upcoming ECB meeting thus will be the the full allotment procedure for the refinancing operations. It seems likely that full allotment remains in place for the main refinancing operation.
This would allow banks to roll the collateral of the maturing 12M LTRO over into the next MRO.
Another key decision the ECB is whether the last six-month tender will be offered at the current refi rate or whether it will be indexed. I think a tracker rate would be an indication that the ECB is not willing to commit to the current refi
rate level until the end of 3Q. This would keep the door open for a September rate hike. The opposite logic applies if it goes for a fixed
rate at 1%. The ongoing reduction in the maturity of the ECB funding operations should cause money market interest rates to rise, especially for longer-dated EURIBOR contracts, which should push above the refi rate. Would love to get your thoughts on this!
Hi martin,
ReplyDeleteTomorow will be key for the ECB. It seems to me that there is a high probability they will index 6 month operation to refi rate. But I would be very surprised if they further withdraw any other measures at this time. Several officials have been talking of keeping 1 month operations permenant and so keeping with the reduction in maturity of for funding operations. Personally I have been gearing up to go short red months, since I think we are simply at to high levels, we have rallied a bit too much, and I think anything that is a bit more hawkish then keeping all liquidity measure in place would trigger an over due selloff.