Date: Tuesday 03 Jul 2012
These were the yields and basis point movements of some of the most watched 10 year bonds by the close in Europe:
Spain: 6.25% (-13bp)
Italy: 5.63% (-11bp)
France: 2.54% (-1bp)
Germany: 1.53% (+1bp)
UK: 1.76% (+6bp)
USA: 1.62% (+4bp)
Ireland: 6.22% (-12bp)
Eurozone periphery bond prices rose (on short-covering before Thursday´s ECB meeting according to some) while those for Germany, the UK and the US dropped to various degrees, sending yields higher.
That on another ‘risk-on‘ day and ahead of tomorrow´s July 4th holiday Stateside and expected easing measures from the Bank of England (BoE) and the European Central Bank (ECB).
In fact, following yesterday´s weaker than expected reading on US manufacturing bets have risen for further moves from the Federal Reserve.
Helping the move out of perceived havens today, the latest US factory orders data showed an 0.7% month-on-month increase (Consensus: 0.2%). Nevertheless, one should be wary of any moves on the day before a bank holiday.
Furthermore, Treasury yields are at levels making them near the most overpriced ever, according to a model created by Federal Reserve economists know as the 'term premium'. The gauge was negative 0.91 today, the lowest since falling to a record negative 0.94 on June 1st.
For its part, in a report based on this year´s so-called article IV consultations the International Monetary Fund has revised its gross domestic product growth forecasts for the United States slightly downwards, to 2% this year (from 2.1%) and about 2.25% in 2013 (from 2.4%), amid a “tepid” recovery and due to the impact of the European debt crisis.
Also worth taking into account, German, Dutch and Finnish debt may have been hurt today by new rules from the Dutch central bank allowing insurers to use a new interest rate for long-dated debt, with an aim to reducing the variability in insurance companies´ solvency positions.
Meanwhile, Chancellor Angela Merkel has assured Germans that the conditions underlying ESM aid to banks will be decided on a case-by-case basis.
Lastly, Ireland has announced that it is planning to return to bond markets on Thursday with the sale of €500m in Treasury bills maturing on Oct. 15th. The country´s October 2020 debt is yielding 6.22% (down by 12 basis points on the day), at 6.22%, below that of Spain.
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