European Bond Market Preview 1/25

[TradeTheNews]

- European government bonds closed slightly lower yesterday after poor results were announced from a German bond auction.
- Germany sold €4.943B in 4.25% 30-Year Bunds yesterday with an average yield of 4.11%, and a bid-to-cover of 1.2. The 1.2 BTC fell below the prior BTC of 1.5, and the neutral BTC, which was called at 1.6. The poor results quickly weighed down on the EGBs.
- The focus in today's session will fall upon the German IFO data for the month of January due out at 4:00 ET. Analysts forecast that the IFO data will rise from December's data on all fronts. Recall that in December the business climate reached its highest level on record at 108.7; Records began in January of 1991. Also recall that the Current assessment figure reached its second highest level on record at115.3, and was the highest since February of 1991. For today's data, any business climate figure above 108.7 will be a new all time high. Any current assessment figure above 115.3 will become the second highest number on record (highest since February of 1991), while any number above 116.4 will be a new all time high.
- Note that the Belgian Business Confidence Level, which is often viewed as an indication on where the German IFO data may come out, was released yesterday, and came in at 2.1, well below estimates of 2.5, and the previous month's figure of 2.6. Yesterday's figure was the lowest since March of 2006.
- Additional focus will fall upon the GFK consumer confidence figure for the month of February due out at 2:00 ET. Consumer confidence is seen falling to 8.4 in February from 8.7 in January as the impact of the VAT hike is likely to be seen.
- Finally, the ECB's Gonzalez-Paramo is due to speak in Berlin at 14:45.
- Over in the UK Gilts closed lower, but outperformed the EGBs. Gilts were weighed down by the results of the minutes from the Bank of England's rate setting meeting at which the BOE surprisingly raised interest rates by 25bps to 5.25% as announced on January 11th.
- The Bank of England voted 5-4 to raise interest rates during January's MPC meeting. Majority of analysted forecasted a 7-2 vote. The BOE's Bean, Blanchflower, Lomax, and Tucker were the dissenting voters. The BOEMajority said that they saw little chance of a sharp slowdown in growth resulting from an interest rate hike, noting that they did not see inflation falling quickly any time soon. The BOE Minority expressed belief that inflation would fall during 2007.
- Focus in today's session will fall upon the results of 2055 gilt auction. The UK DMO is set to sell £625M in 1.25% I/L Gilts due 2055. Recall that at the last auction, held on May 25th 2006, the DMO sold £700M in 2055 gilts with an average price of 106.00, and a bid-to-cover of 1.16. Additionally note that there were 8 retail bids representing £70M.

 

[TradeTheNews]

- European government bonds closed lower yesterday after tracking treasuries in the US. EBG's also traded lower as investors reassessed Germany's IFO data and concluded that, despite lower than expected results, data still indicated that the ECB may need to raise interest rates in 2007.
- In today's session, which is expected to relatively quiet, the focus will fall on the German Import Price Index and the Euro-Zone M3 Data, due at 2:00 ET and 4:00 ET respectively.
- The ECB's Stark said overnight that upside risks to price stability remain, noting that the ECB is closely monitoring all developments. Stark followed saying that moderation in wage growth is imperative, reiterating that the ECB doesn't accept HCPI above 2.0% Stark ended saying that a risk of reaccelation in inflation means that the EBC is in a state of alertness on interest rates.
- Barclays' Thorsten Polleit spoke in an interview yesterday noting that Barclays currently forecasts that the ECB will raise rates by 25bps in March, and another in June bringing the rate up to 4.00% by June.
- Note that Italy is set to sell €2B in two-year zeo coupon bonds. Results are expected slightly after 5:00 ET.
- In the UK Gilts traded lower tracking their EGBs and US Treasuries.
- Gilts fell yesterday after a court ruled that the government shouldn't be held fully liable for breaching an EU law that protects workers' pensions. According to Royal Bank of Scotland's Chaytor, the result may be reduced long-end demand.
- The UK DMO sold £625M worth of 1.25% I/L Gilts with a bid-to-cover of 2.42, and an average yield of 0.833%; The previous bid-to-cover was 2.4.
- The focus in today's session will fall upon BBA mortgage lending figures for the month of November due out at 4:30 ET.

 

[TradeTheNews]

- European Government Bonds closed lower on Friday, posting a drop for the week on speculation that inflation is accelerating in the Euro-Zone area. Bonds closed lower as investors speculate as to when the ECB will raise interest rates.
- The ECB's Trichet said this weekend that this is no time for complacency on inflation. Trichet followed saying that global finance is probably underpinning risks. Trichet noted that last week's M3 data confirms the ECB's view, and said that he expects growth in 2007 to be similar to that of 2006.
- The ECB's Bini Smaghi said this weekend that Euro-13 growth will be sustained during 2007. Bini Smaghi reiterated that inflation is seen around 2.0% in the medium term, also reiterating that current interest rates do not hinder growth, and that rates are accommodating. Bini Smaghi concluded saying that the ECB's strategy will continue in the coming months.
- With no major economic numbers scheduled today focus will fall upon CPI data from the German state of Brandenburg for the month of January due out at 2:00 ET. There are no expectations, the prior m/m figure was 0.8%, while the prior y/y figure was 1.7%. Bradenburg will be the first of the state CPI figures, all of which are expected to be released over the next few days.
- Gilts rallied slightly towards the end of Friday's session after spending most of the session in the red. Gilts remained on in the red on the short end as investors price in the possibility of another Bank of England Interest rate hike.
- With no major economic data, nor any major events scheduled to take place in the UK today, the focus in today's session will fall up the CBI Distributive Trades Data for the month of January due out at 6:00 ET. There are no expectations for the CBI data, but note that the prior distributive trades figure was 25, while the prive expected sales was 4, the prior underlying sales was 4, and the prior order volume was 19.
- Italy is set to sell up to €1.25B in 10-Year I/L Bonds; Results are due shortly after 5:00 ET. Norway is set to sell NOK4B in 2-Year 5.50%; Results are due shortly after 5:00 ET.

 

[TradeTheNews]

- European government bonds closed lower yesterday after a seres of comments from ECB officials over the weekend along with comments from the ECB's Liebscher during yesterday's session reinforced the view that the ECB will need to raise interest rates during the coming months as expected.
- The ECB's Liebscher said yesterday that pre-emptive actions on CPI risks are warranted. Liebscher also reiterated that risks are seen on the upside.
- Ahead of February 9th's G7 the EU's Juncker commented. Juncker said that finance ministers discussed forex ahed of the G7 meeting. Juncker also said that the Euro-Zone finance ministers will focus on fiscal policy coordination over the next few months.
- Focus during today's session will fall upon the release of German state CPI figures. There are no estimates and no release times scheduled. Release times are typically announced throughout the session approximately one hour in advance of the actual release. Preliminary CPI for the month of January is expected to slow to 0.2% from 0.8% in December, while, on an annual basis, CPI is expected to rise to 2.0%.
- Italy is set to sell €2B in 3-Year 3.75% bonds overnight, as well as €2B in 7-Year floating rate notes. Results are expected shortly after 5:00 ET.
- Over in the UK gilts closed higher after the yield on the 10-year rose above 5.00% for the first time since September of 2004.
- Overnight the National Institute of Economic and Social Research raised its forecast for economic growth in the UK. NIESR said that the BOE is likely to raise rates to 5.50% during the second-quarter of 2007, noting that the rate hike should bring inflation near 2.0% during the second-half. NIESR also said that there is a risk that the BOE will raise rates to 5.75% during the second-half. NIESR said that the risk of CPI rising about 3.0% in the near term is small. NIESR forecasted UK GDP growth of 2.8% in 2007, and 2.4% in 2008, furthermore forecasting that inflation will return to its target level late in 2009.
- The focus during today's session will be nationwide house prices for the month of January. On an annual basis house prices are expected to fall to 10.0% from December's 21-month high of 10.5%.
- Additional focus will fall upon final M4 money supply data for the month of December as investors look for any revisions.

 

[TradeTheNews]

- European government bonds closed slightly lower in yesterday's session ahead of Euro-Zone inflation, German retail sales and unemployment data, and the FOMC's interest rate decision, all of which are due out today.
- In an interview with Boersen-Zeitung the ECB's Stark said overnight that rates are still accommodative, and that the ECB will do whatever is necessary for stable prices. Stark also said that economic and monetary developments pose price risks. Stark concluded saying that the German economy is stronger than expected.
- Overnight French unemployment fell to its lowest level since June of 2001 ahead of elections in which employment is one of the leading issues. Unemployment fell to 8.6% from 8.7%, while the unemployment change was -22K, below estimates of -20K.
- The focus during today's session will fall upon a few different economic releases. German retail sales for the month of December are expected to rise to 1.2% from -0.7% in November. Retail sales are expected at 2:00 ET.
- German unemployment, which is due out at 3:55 ET, is expected to yield a jobless change of -40K, and an unemployment rate of 9.7%. The German Labor Agency recently said that it expects that unemployment is likely to have risen during the month of January, but anticipates that the rise in unemployment is less than usual.
- The Euro-Zone CPI estimate, which is due out at 5:00 ET, is expected to rise to 2.1% in January from 1.9% in November.
- In the UK gilts closed lower tracking their European counterparts. Gilts also moved lower upon the release of lower than expected mortgage approvals, and a decline in nationwide house prices.
- In the UK GDK consumer confidence for the month of January is scheduled for release at 5:30 ET. Consumer confidence is expected to fall to -9 in January from -8 in December. A reading of -9 would be the lowest number since December of 2005.

 

[TradeTheNews]

- European government bonds closed higher yesterday after weaker than expected manufacturing data was released.
- The focus in today's session will be the Euro-Zone PPI for the month of December, due out at 5:00 ET. PPI is expected to remain unchanged from the month of November.
- The Bank of Spain said yesterday that the Spainsh economy grew by 1.1% during the fourth-quarter, and, on the year, grew 4.0% during the fourth-quarter. For the full year 2006 the Spanish economy grew by 3.8%. The Bank of Spain said that lower oil prices, and a stronger Euro have helped to ease inflation. The Bank also said that wages are the biggest risk to price stability.
- The ECB's Wellink said in a magazine interview published yesterday that he sees Euro-Zone growth of as much as 2.75% in 2007. Wellink reiterated that interest rates are still low.
- In the UK gilts underperformed, closing lower in the session after the release of stronger than expected manufacturing PMI data.
- The focus in today's session will be construction PMI for the month of January, due out at 4:30 ET. Construction PMI is expected to fall to 57.0 from 57.5 in December.

 

[TradeTheNews]

- European government bonds closed higher on Friday tracking treasuries after non farm payrolls data showed a smaller increase in payrolls than expected.
- The flow of major economic data will be relatively slow during today's session. The focus will fall upon services PMI data for the month of January. Note that, with the exception of the UK, we saw all of the major European manufacturing PMI figures fall below expectations last week.
- Over the weekend the ECB's Draghi reiterated that global and euro-region growth rates are favorable. Draghi consinuted by saying that the ECB policy has anchored inflation expectations, noting that the ECB aims to combat inflation.
- Over in the UK Gilts closed relatively unchanged on Friday, underperforming the EGBs.
- The focus in today's session will fall upon the services PMI data due out at 4:30 ET. Recall once again that the UK was the only country to report their January manufacturing PMI ahead of estimates.

 

[TradeTheNews]

- European Government bonds closed higher yesterday tracking treasuries in the US despite higher than expected service PMI data across the Euro area.
- The ECB's Weber commented ahead of the US open yesterday. Weber forecasted German economic growth of 2.0% in 2008. Weber said that wage increases need to remain moderate, and furthermore confirmed that the German recovery remains intact.
- Towards the European close the ECB's Gonzalez-Paramo made a comment in Berlin. Paramo said that the ECB's greatest contribution to growth is stable CPI. Paramo did not mention monetary policy, nor did he allude to Thursday's rate decision.
- In yet another session light on the economic front the focus will fall upon Euro-Zone retail sales for the month of December, which are expected to rise from the month of November. If the y/y figure comes in at 2.3% as forecasted, it would be the highest number since August of 2005. Euro-Zone retail sales are due out at 5:00 ET.
- Additional focus will fall upon German factory orders for the month of December which are expected to fall m/m from November, and rise y/y from November. According to a recent survey of economists factory orders are seen rising y/y as a result of strong economic growth. German factory orders are due out at 6:00 ET.
- Finally, additional attention may fall upon comments from the ECB's Weber. Weber is set to speak about the Euro at 13:30 ET.
- Over in the UK gilts also traded higher gaining support from a lower than expected reading on the service PMI for the month of January after a greater than expected reading on the manufacturing PMI last week. Service PMI fell to 59.2 in January from December's nine and a half year high of 60.6.
- With no speakers and no economic data scheduled in the session focus will fall upon the results from today's gilt auction. The DMO is set to sell £2.25B in 4.25% bonds due 2046. Results are due shortly after 5:30 ET. Note that on November 7th, 2006 the DMO sold £2.25B in 2046 gilts with a bid-to-cover of 1.74, and an average accepted price of 106.82. Total bids received amounted to £3.92B. The November auction had a 1 basis point yield tail.
- Note that in the US today the FED's Moskow is scheduled to speak at 13:00 ET, while the FED's Bernanke is scheduled to speak at 13:30 ET. Additionally the FED's Yellen is scheduled to speak at 15:30 ET.