Weekly fixed income review

Market review: Week to October 25, 2019

  • The European Central Bank (ECB) left rates unchanged on Thursday, marking President Mario Draghi’s final policy meeting at the central bank. Draghi stated that economic data for the eurozone has continued to moderate as international trade tensions have weakened manufacturing activity and business investment. The ECB’s previously announced new round of quantitative easing (monthly purchases of €20bn) is due to begin next week on November 1.
  • UK government bonds rallied during the week with the yield on the 10-year gilt moving 7bp lower, outperforming US 10-year Treasuries (+2bp) and 10-year German bunds (-1bp) amid ongoing Brexit uncertainty. Elsewhere, the yield on Greek 10-year debt continued its march lower, falling to a record low of 1.2%. (See chart below.) Investors expect Standard and Poor’s to upgrade the Greek nation’s credit rating on Friday.
  • European data remained subdued as the composite PMI reading for the region ticked up by only 0.1 to 50.2 for October. The German manufacturing PMI reading came in at 41.9, only marginally higher than September’s 41.7. However, French data was more promising as manufacturing and services both climbed to 50.5 and 52.9 respectively.
  • The UK government’s Brexit deal vote was delayed due to the passing of an amendment over the weekend that required all of the legislation to pass through Parliament, forcing Prime Minister Boris Johnson to request an extension from the EU. Then, on Tuesday MPs voted in favor of the prime minister’s deal but rejected his timetable to leave the EU on October 31. EU officials have agreed to an extension but have yet to decide on its duration while PM Johnson pushes for a December general election.
  • In credit markets, corporate spreads tightened as easing China trade tensions and Brexit worries helped buoy risk sentiment while low yields continued to drive investors’ reach for yield. Market participants also focused on earnings during the week, which have largely been coming in a bit better than consensus; we have not seen outsized reaction to any releases thus far. There was also minimal USD issuance with only a handful of deals from Fifth Third, Norfolk Southern, Wells Fargo, and CELARA. European issuance was similarly quiet with €25bn of issuance during the week.

Chart of the Week: The yield on 10-year Greek debt fell to an all-time low this week (%)

Chart of the Week The yield on 10-year Greek debt fell to an all-time low this week (%)_25-10-2019_NA

Source: Bloomberg. Data as at October 25, 2019.


Bloomberg statistics_25_Oct_2019_NA 

Source: Bloomberg, October 25, 2019

Economic calendar

October 28: US Dallas manufacturing index
October 29: France consumer confidence, US pending home sales
October 30: US and France GDP, German unemployment and inflation, EU business confidence
October 31: EU inflation, German retail sales, US jobless claims
November 1: US unemployment, ISM manufacturing, and nonfarm payrolls

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