Will core bonds stay on the offensive?

Global core bonds continued to rise on Monday with US Treasuries heavily outperforming German Bunds. Risk-off remained the general sentiment of the day. Asian equity indices recorded their worst day of the year, while EU markets were able to limit losses. Sentiment flourished cautiously on stronger-thanforecasted German IFO business confidence assessment, weighing on German Bunds. However, as US investors joined the debates, a new rally in US Treasuries pulled German Bunds higher as well. The German yield curve moved lower with losses up to 2.2 bps (30-yr). The fresh rally in US Treasuries even pushed the benchmark US 10-yr yield briefly below 2.4%, the first time since December 2017. Both Chicago Fed president Evans and Philadelphia Fed president Harker acknowledged that risks from the downside scenarios loom larger than those from the upside. The Fed might therefore put interest-rate increases on hold or even ease monetary policy if economic forecasts for 2019 disappoint. However, both gentlemen confirmed the outlook on the US economy overall remains positive. Investors foresee a less bright future and start to bet on a rate cut in 2019. The US yield curve bull steepened with changes ranging from -1.3 bps (30-yr) to -7.5 bps (2-yr).

This morning, Asian markets are rebounding from yesterday's selloff. Japanese indices gain more than 2%, while Chinese equities are submerging with losses over 1%. EU and US equity futures suggest a cautious rebound in sentiment as well, giving core bonds a downward bias at the start of the day.

Today's eco calendar contains several US eco data (housing figures, Richmond Fed manufacturing index and consumer confidence). We expect consumer confidence to stabilize in March as it already rebounded strongly in February. In current fragile sentiment, a disappointment in the Richmond Fed manufacturing index and/or housing figures could weigh more than usual on sentiment. A new avalanche of Fed speakers (Harker, Evans and Daly) take the stage today while the US Treasury taps the market (2-year Notes). The EMU calendar contains only second-tier confidence data for Germany and France, but given that growth concerns are currently occuping markets, we expect investors to monitor this data closely.

The US 10-yr yield fell through the lower bound of the 2.5%-2.79% trading range, continuing the downward trend since the beginning of March. 2.30% may serve as new key support level. This week's US supply will be interesting to see investors' appetite for US Treasuries at current yield levels. The German 10-yr fell to negative levels again, the first time since October 2016.

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