BONDS: EGBs-GILTS CASH CLOSE: BTPs, Gilts Outperform
Apr-14 18:12
European bonds strengthened across the board to start the week, with Gilts outperforming Bunds.
- Price action was indicative of a relief rally, with mixed messages over the weekend on sectoral US tariff exemptions seen as a moderate positive development.
- That helped Treasuries stabilize from their recent sell-off, spilling over into the European space.
- A stabilization in US consumer's long-term inflation expectations evident in a New York Fed survey helped trigger another leg of gains, with Bund / Gilt futures finding new session highs into the cash close.
- The UK curve bull flattened substantially, with Germany leaning likewise.
- BTPs outperformed on the EGB periphery, benefiting from Friday's S&P ratings upgrade to BBB+ (stable) from BBB.
- Focus for the week remains on UK Feb/Mar Labour Market *Tuesday) and Mar Inflation (Wednesday) data, and the ECB meeting Thursday.
Closing Yields / 10-Yr EGB Spreads To Germany
- Germany: The 2-Yr yield is down 3bps at 1.759%, 5-Yr is down 5.8bps at 2.074%, 10-Yr is down 5.8bps at 2.512%, and 30-Yr is down 1.4bps at 2.877%.
- UK: The 2-Yr yield is down 3bps at 4.018%, 5-Yr is down 5.7bps at 4.153%, 10-Yr is down 9.3bps at 4.66%, and 30-Yr is down 13.2bps at 5.384%.
- Italian BTP spread down 7.7bps at 116.5bps / French OAT down 4.6bps at 75.4bps
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FED: March Economic Projections: Higher Inflation, Weaker Growth, Same Rates
Mar-14 21:28
The MNI Markets Team’s expectations for the updated Economic Projections in the March SEP are below.
- The unemployment rate is likely to rise slightly for 2025 alongside a downgrade in GDP growth, while the 2025 core and headline PCE inflation projections are set to rise again. Changes to later years will likely be limited, however.
- More detail on the shift in Fed funds rate medians is in our meeting preview - we will add more color next week.
FED: Market Pricing Nearly 3 2025 Cuts As Conditions Tighten
Mar-14 21:25
Amid rising government policy uncertainty, sentiment among businesses and consumers has fallen sharply since the start of the year, while equities and the dollar have reversed their post-election rise. Overall, financial conditions have tightened, even if stress is not yet mounting, e.g. no major widening of credit spreads (the accompanying chart shows the Fed’s financial conditions impulse index but only through January).
- Combined with growth fears, this has affected expectations for the Fed’s rate path, with around 18bp more cuts expected in 2025 compared with what was seen after the January FOMC. 65bp of cuts are priced for the year as a whole. 2025 cut pricing reached 71bp before the February inflation data and 76bp before the February payrolls report.
- A rate cut is seen with near zero probability for March’s meeting, but the first full cut is just about priced for June, with a second nearly priced by September.
- Chair Powell has no reason to endorse or refute these expectations – he’s likely to be happy with a press conference that ends with little discernable change in pricing.
CANADA'S CARNEY ANNOUNCES ELIMINATION OF THE CONSUMER CARBON TAX
Mar-14 21:17
- CANADA'S CARNEY ANNOUNCES ELIMINATION OF THE CONSUMER CARBON TAX
