ECB sends more dovish signals

Global core bonds with US Treasuries remarkably outperforming German Bunds even if the only real upleg of the day occurred around ECB President Draghi's press conference following the policy meeting. The ECB didn't alter policy or its forward guidance, but the ECB chair stroke a particularly dovish tone by emphasizing readiness to alter parameters of the policy to counter the economic downturn. Details on new TLTRO's and the analysis/action against possible mitigating effects from the negative interest rate policy will be brought on forthcoming meetings. The next gathering takes place on June 6. The US Treasury continued its mid-month refinancing operation with a strong $24bn 10-yr Note auction. FOMC Minutes of the March meeting aligned with the dot plot, showing that "A majority of participants expected that the evolution of the economic outlook and risks to the outlook would likely warrant leaving the target range unchanged for the remainder of the year". US yields fell by 2.1 bps (2-yr) to 3.5 bps (10-yr) on a daily basis. The belly of the curve outperformed the wings. German yield declines ranged between -0.1 bp (30-yr) and -2.4 bps (5-yr). 10-yr yield spreads vs Germany narrowed up to 3 bps (Greece).

Asian stock markets most trade negative this morning despite the 6-month Brexit extension and despite comments by US Treasury Secretary Mnuchin that the US and China agreed on more unresolved issues in the trade deal (eg enforcement mechanisms). The reaction suggests that much trade deal optimism is already discounted. Core bonds tread water.

Today's US eco calendar contains weekly jobless claims and March producer price inflation. Claims are expected to hover near historically low levels while PPI is expected to rise by 0.3% M/M and 1.9% Y/Y. We don't expect them to impact trading. The US Treasury ends its refinancing operation with a $16bn 30-yr Bond auction. Speeches by Fed governors Clarida, Williams, Bullard, Kashkari and Bowman are wildcards for trading. Intraday core bond momentum remains positive.

Long term view: markets concluded that the ECB missed out on this cycle. They even start pondering the possibility of an additional deposit rate cut. The downtrend in the German 10-yr remains in place with the all-time low (-0.2%) in sight. Regarding Fed policy, markets now discount a 60% probability of a Fed rate cut by December. The US 10-yr yield fell through the lower bound of the 2.5%-2.79% trading ran ge, continuing the downward trend since the beginning of March. The previous support was retested last week, strengthening the break lower. Next support levels are the 2.3% area (intermediate) and 2% zone (key).

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