US bond yields stabilise despite massive supply

Market movers today

Another quiet day awaits us with few signals from the data front. Fed's Kaplan and Daly will be on the wires later in the day.

In Denmark, foreign reserve figures for April are released and it will be interesting to see whether Danmarks Nationalbank continued to intervene in the FX market.

The 60 second overview

Macro: Comments from Fed Chairman Powell and New York Federal Reserve governor Williams supported US government bonds, and 10Y yields declined modestly. Powell stated that recovery is "patchy", while Williams stated that "We still have a long way to go to achieve a robust and full economic recovery" even though he is optimistic regarding the economic outlook, while inflation will settle back around 2%.

There will be plenty of US Treasury bonds for sale in coming months as the net sale of US Treasury bonds will go from some USD 100bn to USD 460bn for Q2 since the Treasury department has to finance the additional spending from Joe Biden's fiscal stimulus packages. However, the impact on the Treasury market was modest as the market had expected a significant increase in the issuance.

Equities: Equities mostly higher yesterday driven by energy and materials sectors. It was a relatively quiet day but still with 2% performance difference between the best to the worst sector yesterday. Value continued to outperform growth for the fifth consecutive day while defensives beat cyclicals despite the risk-on mode. Asian equities mixed this morning in a session still affected by the public holidays in mainland China and Japan. European and US futures slightly lower. UK futures are higher as they are catching up from the close yesterday.

FI: European core rates ended virtually unchanged on the day after touching some 3bp higher yields in the morning session to new highs since March last year. Peripheral spreads tightened to core by 2-3bp led by Italy. There was no apparent driver of the moves.

FX: EUR/USD rose yesterday in line with our expectation to a bounce in equities and the likely rally, following last Friday's sell-off. Danmarks Nationalbank may choose to cut rates by 10bp on Thursday and hence today's FX reserve numbers are key to watch. We see EUR/SEK as primarily range-bound between 10.10-10.20 for the coming weeks.

Credit: Trading was thin in EUR credit yesterday, as UK was out due to public holiday, meaning there was no trading in iTraxx indices. Both HY and IG bonds were unchanged.

Nordic macro and markets

Denmark. The Danish Central Bank will publish FX reserves at 5pm. If there has been significant intervention, then this will fuel speculation regarding a possible rate cut of 10bp and support the front end of the Danish yield curve and tighten the spread to German government bonds as well as reducing the EURDKK 3M FX forward.

In the mortgage market, total prepayments for the July term ended at DKK 26.9bn. Hence the reinvestment need will decline significantly relative to previous quarters where the total prepayments were above DKK 73bn, but with lower prepayments there will also be less issuance. 

Sweden. Today at 10:00, the Riksdag Committee on Finance will hold an open hearing on the Riksbank's Account of Monetary Policy 2020. Part of the Riksbank's independence is that every year the Committee on Finance examines and assesses the monetary policy conducted by the Riksbank during the immediately preceding years. While formally and democratically important, these gatherings seldom offer any policy news. The housing market and distribution of income and wealth will probably draw politicians' attention, even more so than inflation.