Bonds: Drop in German Bunds weighs on US Treasuries again
These were the movements in some of the most widely followed ten-year sovereign bonds:
US: 2.18% (+5bp)
UK: 1.97% (+13bp)
Germany: 0.52% (+6bp)
France: 0.83% (+10bp)
Spain: 1.79% (+28bp)
Italy: 1.81% (+27bp)
Greece: 11.13% (+57bp)
Portugal: 2.39% (+30bp)
Japan: 0.37% (+1bp)
Volatility in the sovereign bond markets took off again on Tuesday following a worse than expected reading on US foreign trade in the month of March which saw analysts revise down their forecasts for first quarter economic growth.
The country’s trade balance worsened as the end of the labour strikes at ports on the West Coast saw imports shoot higher which, although export growth also came in under analysts’ forecasts. Capital Economics now sees first quarter GDP printing at -0.3% quarter-on-quarter and Bank of America-Merrill Lynch at -0.5%.
However, the ensuing rise in Treasury prices was cut short by a renewed rise in Bund yields. They were not alone, Eurozone periphery bond yields ended which far bigger moves to the upside, but with market observers at an apparent loss to pinpoint the exact cause. For some the volatility in markets was the result of a reflation trade in the Eurozone while for other it was due to fears over the situation in Greece.
To take note of, other asset classes were not spared either, with a two-day rally in the US dollar cut short while equity markets rapidly sold off again.
In parallel, Saudi Arabia’s decision to raise its official selling prices for June shipments to European and US refineries stoked gains in crude futures.
Lastly, in the evening the US Treasury auctioned $30bn in four–week bills at a high rate of 0.0%, equalling the December 2008 lows. That prompted some traders to ask themselves “What US rate hike?,” in reference to the now non-extant possibility of a June FOMC rate hike.