European Bonds Mixed in Quiet Trade

European Bonds Mixed in Quiet Trade

20 May 2016, 12:45
Roberto Jacobs
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European Bonds Mixed in Quiet Trade

The European bonds trade mixed on Friday as investors receives no more important data or events for the direction on the last day. On the contrary, future course in bond prices are likely to be ruled by the movements in the crude oil market. The benchmark German 10-year bonds yield, which is inversely proportional to bond price remained steady at 0.173 pct, French 10-year bunds yield stood flat at 0.511 pct, Irish equivalents inched lower 1bp to 0.853 pct, Italian equivalents tumbled 4bps to 1.474 pct, Netherlands 10-year bonds yield hovered at 0.490 pct, Portuguese 10-year bonds yield ticked down 3bps to 3.073 pct, Spanish 10-year bonds yield dipped 3bps to 1.573 pct and British 10-year bonds yield rose 1bp to 1.458 pct by 0940 GMT.

The European bonds have been closely following developments in oil markets because of their impact on inflation expectations, which are well below the European Central Bank's target. Today, crude oil prices rebounded as turmoil in Nigeria, shale bankruptcies in the United States and crisis in Venezuela all contributed to tightening supplies. Meanwhile, the International benchmark Brent futures rose 0.70 pct to $49.16 and West Texas Intermediate (WTI) jumped 0.73 pct to $48.51 by 0900 GMT.

The FOMC in its April 26-27 meeting minutes showed quite a hawkish view of Fed officials. This indicates that several participants believed in April that it is appropriate to raise rates in June if the incoming data indicated a rebound in the economy. On balance, these minutes go a long way in uncovering sentiment not very much reflected in the April FOMC statement. On balance, this release should go a long way in making the June meeting a live event, something that was seen as less likely in the wake of the April meeting. However, given the need for data to cooperate as the meeting approaches, nothing is certain. Nevertheless, we continue to expect only 50bps worth of tightening from the FOMC in 2016, regardless of whether or not they choose to act in June.

Meanwhile, the pan-European STOXX 600 index was up 0.75 pct and the euro-area blue-chip gauge, the STOXX 50 climbed 0.82 pct. The FTSE 100 Index rose 1.37 pct, the DAX trading 0.78 pct higher and the CAC-40 jumped 0.93 pct by 0940 GMT.

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