Bunds eked out modest gains

Rates

Bunds eked out modest gains, the belly of the curve outperforming, as sentiment on risks deteriorated during the US session. Bund yields fell up to 5 basis points. US Treasuries recovered from earlier losses, but ended the session mixed. The 2‐ and 5‐year yield up 1 and 2.3 basis points, while the 10 and 30‐ year yield fell 1.4 and even 4.6 basis points. The flattening might still be mostly been driven by post FOMC repositioning. Equities slid, especially the NASDAQ, but stabilized after two hours of trading even recouped some losses. The dollar strengthened against the euro, but in strange circumstances (see FX part). There wasn’t some clear‐cut trigger to explain the price action. Of course, the news on Ukraine and Russia remained downbeat, but this was already the case during the weekend and we saw little concrete new items. Eco data had a limited impact. Peripheral 10‐year spreads widened 5 to 6 basis points, but Portuguese Greek spreads were flat to lower.

Today, the US eco calendar heats up with Conference Board’s consumer confidence, the Richmond Fed index, new home sales and house prices. In the euro zone, only the German IFO business climate indicator and French business surveys will be released. ECB’s Draghi, Visco and Weidmann are scheduled to speak as is Fed’s Lockhart. Norway (Bond), the Netherlands (DSL) and the US (2Yr Notes) will tap the market.

In the US, Conference Board’s consumer confidence is forecast to have improved marginally in March. In February, consumer sentiment weakened slightly, from 79.4 to 78.1, but a small improvement to 78.5 is expected for March. We believe that the Conference Board’s index might come out somewhat stronger supported by a stronger payrolls report. Also the Richmond Fed index is forecast to show a rebound in March. Sentiment deteriorated sharply in February (from 12 to ‐6), probably due to poor weather conditions. The consensus is looking for an increase from ‐6 to 3 in March, but see risks for a stronger outcome. New home sales, on the contrary, are forecast to have dropped significantly in February, following a strong increase at the start of the year. A rebound by 4.9% M/M is expected to 445 000. As weather conditions were poor in February, risks are for an even bigger drop in sales. Finally in the US, both housing price data are expected to show a more limited increase in January, probably also held back by unfavourable weather. In the euro zone, it will be interesting to see whether the French INSEE surveys confirm yesterday’s impressive rebound in the PMI’s. In Germany, the IFO business climate indicators are forecast to show slight weakening in sentiment in March. A slight drop from 111.3 to 110.8 is forecast due to weakening in expectations, while we hope to see a further improvement in the current assessment.

Overnight, most Asian equity markets trade slightly negative, but not more than US equities yesterday, suggesting it won’t give impetus at the start of the European session. Little news is available from Asia. S&P downgraded Brazil’s rating to BBB‐, but it shouldn’t have much impact either. European equities should open stronger, catching up with WS price action after the close. US Treasuries are little changed and we expect the Bund to open little changed today.

Today, the eco calendar is interesting, but unlikely to play a main role unless big surprises happen. IFO and Insee may confirm the mixed pictures of the PMI’s, released yesterday. In the US we see some upside risks for the consumer confidence and Richmond surveys (see above) but downside risks to new home sales, making us think that it won’t give much lasting impetus. Geopolitically, there is no news. The Dutch and US 2‐year auctions should go well. Draghi and Weidmann are wildcards, but we see no compelling reasons why they should stir markets with new information. Key inflation data next week and a somewhat lower euro might keep them silent on policy today.

US Treasuries are still lingering near key support following the post FOMC sell‐off, but the Bund rebounded and remains not too far from contract highs.

Technically, the US Note future is testing the downside of the 123‐15+/125‐06+ channel and the 10‐yr yield the upside of the 2.6‐2.8% range. We believe that following the FOMC statement, US eco data will become very important, but this week the eco calendar is still light. Maybe not important enough for markets to break out of the current range. A break below/above these technical levels paves the way for a return to 121‐ 08+/3%. For the Bund, the picture is more nuanced as the possibility of more monetary easing by the ECB remains and technical key levels are further away (Bund 141.81 support). We see US eco data rebounding, but this might only become clearly visible in next month’s releases. After the FOMC message last week, we favour the downside (higher yields), but time may not be ripe. Effects on Bunds may be modest and not yet technically relevant.