Bonds: Yields jump after poor ECB TLTRO result, Gilts worst of the class
These were the biggest moves in 10-year sovereign bond yields on Thursday:
US: 0 bp (2.62%)
UK: +6bp (2.58%)
Germany: +3bp (1.68%)
France: +3bp (1.44%)
Italy: +2bp (2.44%)
Spain: -1bp (2.28%)
Portugal: +4bp (3.22%)
Japan: +1bp (0.87%).
Sovereign bond yields were mostly higher on Thursday after a European Central Bank auction of targeted liquidity failed to meet analysts´ forecasts.
Via means of its new TLTRO´s the ECB offered banks up to 1trn euros in cheap financing. However, the take-up by European lenders only reached 82.6bn euros, well below the roughly 150bn euros expected by analysts. That led many market observers to speculate that the central bank´s efforts to date to revive lending in the Eurozone will not suffice.
Of interest, French daily Lópinion reported that ratings agency Moody´s will downgrade the country´s long-term debt ratings.
Acting as a backdrop, the US Federal Reserve on Wednesday evening shifted its interest rate forecasts higher, prompting some analysts to speculate that the Fed might move on rates before mid-2015. For the most part however markets seem to have feared a more hawkish stance.
A sale of $13bn in US Treasury inflation protected securities (TIPS) on Thursday was met with the lowest demand in a year.
The latest data out of the US was mixed. The annual rate of housing starts fell from 1.12m in July, the fastest pace in the last seven years, to just over 950,000 in August, a figure slightly below the 1.03m consensus.
Housing starts surged in July, driven by the volatile multifamily sector, a sector which also led the August decline by falling 31.7% month-on-month to 313,000.
Initial weekly unemployment claims were down by 36,000 to reach 280,000 according to the Department of Labour (consensus: 305,000).
Despite August’s fall, the pace of overall construction increased 8% year-on-year, though analysts warned that the slowdown signalled some weakness in the housing market’s recovery.
To take note of, Gilts underperformed despite the latest data on retail sales volumes showing a rise of 0.2% month-on-month for August (consensus: 0.3%).