Group Economics
Daily Insight
Macro & Financial Markets Research Nick Kounis & Maritza Cabezas
Bond yields to fall further
+31 20 343 5616
13 October 2015 • • •
Government bond yields to fall further in the near term on Fed delay and more ECB QE ECB not ready to step up QE in October, but we think a December move is still likely Fed officials signal some wriggle room on 2015 rate hike view, setting scene for 2016 move
Changes to our bond yield forecasts
Fed funds futures: probability of rate hike
We expect government bond yields to fall further on both sides of the Atlantic in the near term and to rise more slowly during the course of next year. We see 10y US Treasury yields at 1.9% at year end and 2.6% by the end of next year (previously 2.3% and 2.7%, respectively). Meanwhile, we expect 10y Bund yields to decline to 0.4% by year end before rising to 1% by the end of next year (previously 0.5% and 1.4%). Fed delay, ECB QE plus to support bonds The change to our bond yield forecasts follows changes to our monetary policy calls last week. We expect the Fed to delay raising
%
100 75.3
80 62 60
92.8
65.8
48.6 38.8
40 20
79.3
85.5 88.5
10
0 Oct Dec-15 Jan
Mar
Apr
Jun
Jul
Sep
Nov Dec-16
interest rates until 2016, with our base case now for a June lift-off compared to December 2015 previously. Given that markets are
Source: Bloomberg
still pricing in some probability of a rate hike over the next few months (see chart), a delay should see some further pricing out.
Fed’s Vice Chairman Fischer in no hurry for rate hike
This should be supportive for Treasuries. In addition, we expect
Meanwhile, Fed officials continue to signal that a 2015 hike is their
the ECB to extend its asset purchases beyond September 2016.
base case, but are also giving themselves wiggle room to delay to
We had already expected the ECB to raise the level of its monthly
2016 by stressing the increased uncertainty. On Sunday Fed Vice
purchases (by EUR 20bn a month taking the total to EUR 80bn
Chair Stanley Fischer noted, during the Group of Thirty Banking
p/m). A stepping up and extension of QE should be a supportive
Seminar in Peru, that ‘…more time is needed to appraise recent
factor for Bunds in the near term.
developments
in
the
global
economy
before
beginning
normalization of interest rates’. Fischer said that ‘more focus on The changes reflect downside risks to global growth from China
foreign economic developments in recent FOMC statements was
and other emerging markets, low commodity prices and a
natural given the increasing influence these had on the US
generally subdued inflation outlook. The Fed’s delay will also put
economy, both through imports and exports and capital account
upward pressure on the euro, forcing the ECB to react.
developments’. According to the Vice Chair, the rate hike this year ‘…was premised on the assumption of continued solid economic
ECB is not yet ready to go in October
growth and further improvement in the labour market, which are
Commentary from ECB and Fed officials over recent days
key factors in supporting our expectation that inflation will rise to
suggests they are keeping their options open for now. For
our 2% objective’.
instance, Executive Board member Benoit Coeure said that it was ‘premature to discuss’ more QE, though the Governing Council
Fed’s Dudley to discuss appropriate level of interest rates
needed ‘to be ready’ to act if necessary. Given that the ECB
FOMC participants are quite divided on the timing and path of rate
already projected inflation below its medium term objective in
hikes. The FOMC’s communication has been somewhat confusing.
September, and the euro is already above the level it assumed
The tone of FOMC participants in upcoming speeches will be
then (1.136 versus 1.10) the central bank’s procrastination could
critical to assess whether the Fed’s view of the timing for the first
be considered as complacent. Though it seems that the Governing
rate hike is shifting. The influential President of the New York Fed,
Council wants to see more data to get visibility in to what is
Bill Dudley, a voting member, will speak on Thursday about
happening in emerging economies and commodity markets.
monetary policy.
2
Bond yields to fall further – 13 October 2015
Financial markets Currency markets
Close
Change 1 day
Change 5 days
Change YTD
EUR/USD USD/JPY
1.1355
-0.0264
0.7363
119.98
-0.0500
-0.2079
0.1670
AUD/USD
0.7345
-0.2309
2.4979
-10.1529
USD/CHF
0.9628
-0.0104
-0.4137
-3.1681
NZD/USD
0.6709
-0.1340
2.5214
-13.9541
GBP/USD
1.5337
-0.0717
0.7224
-1.5407
USD/SGD
1.4008
0.1358
-1.2826
5.6809
USD/CAD
1.3008
0.0769
-0.1995
11.9353
Bond markets
Close
Change 1 day
Change 5 days
-6.1415
Change YTD
2-year German Govt Bond yield
-0.2570
-0.0080
0.0020
-0.1590
10-year German Govt Bond yield
0.5780
-0.0370
0.0120
0.0370
Yield curve Germany
0.8350
-0.0290
0.0100
0.1960
2-year US Treasury Bond yield
0.6310
-0.0060
0.0298
-0.0335
10-year US Treasury Bond yield
2.0669
-0.0212
0.0354
-0.1043
Yield curve US
1.4359
-0.0152
0.0056
-0.0708
US 2-year sw ap rates
0.7693
0.0018
0.0381
-0.1250
US 10-year sw ap rates
2.0508
-0.0207
0.0138
-0.2353
US sw ap curve
1.2815
-0.0225
-0.0243
-0.1103
EU 2-year sw ap rates
0.0535
-0.0005
-0.0015
-0.1215
EU 10-year sw ap rates
0.9562
-0.0038
-0.0128
0.1442
EU sw ap curve
0.9027
-0.0033
-0.0113
0.2657
-0.0490
0.0000
-0.0030
-0.1270
Euribor 3 Month ACT/360 ICE LIBOR USD 3 Month
0.3206
0.0010
-0.0065
0.0650
JPMorgan EMBI Plus Sovereign S
398.8600
-5.1900
-36.6300
11.4200
Equity markets
Close
Change 1 day % Change 5 days %Change YTD%
Nikkei 225
18,439
1.64
2.41
5.66
Hang Seng Index
22,731
1.21
4.01
-3.70
Hang Seng China Enterprises Index
10,538
1.26
6.62
-12.07
Australian Stock Exchange S&P/ASX 200 Index
5,221
-0.22
1.04
-3.51
Singapore Straits Times Index
3,032
1.12
6.34
-9.90
Euro Stoxx 50 Index
3,247
-0.09
1.78
3.21
S&P 500 Index
2,017
0.13
1.53
-2.01 -0.83
MSCI World Daily Total Return Gross USD
761
0.10
2.58
AEX Index
440
-0.36
0.72
3.67
16
-5.33
-17.25
-15.78
Chicago Board Options Exchange Volatility Index
Commodity markets Reuters/Jefferies CRB Total Return Gold spot USD/Oz Generic first NYMEX Crude Light future Generic first Brent Crude Oil future LME Copper 3 Months Rolling Forw ard Generic first Wheat future Chicago Board of Trade Source: Bloomberg
Close
Change 1 day % Change 5 days %Change YTD%
200
-1.46
1.70
1,163
-0.07
1.37
-13.12 -1.85
48
1.06
-1.92
-10.64
50
1.22
-2.79
-11.97
5,315
0.38
2.67
-15.63
507
0.00
-3.71
-14.07
3
Bond yields to fall further – 13 October 2015
Day
Date
Time
Country
Key Economic Indicators and Events
Period
Latest outcome
Consensus
Monday Monday Monday Monday Monday
12/10/2015 12/10/2015 12/10/2015 12/10/2015 12/10/2015
14:00:00 09:00:00 15:45:00 14:10:00 16:30:00
IN CH EC US US
CPI - % yoy Total Sight Deposits bn ECB announces weekly QE details Fed Lockhart speaks on US outlook Fed Evans speaks on policy and the economy
Sep
4.4 465
4.4
Tuesday Tuesday Tuesday Tuesday Tuesday Tuesday Tuesday Tuesday Tuesday
13/10/2015 13/10/2015 13/10/2015 13/10/2015 13/10/2015 13/10/2015 13/10/2015 13/10/2015 13/10/2015
08:00:00 10:30:00 11:00:00 12:00:00
DE GB DE US CN CN CN CN CN
CPI - % yoy CPI - % yoy ZEW index (expectation economic growth) NFIB small business optimism - index Exports - % yoy Imports - % yoy Aggregate financing - CNY bn New yuan loans - CNY bn Money supply M2 - % yoy
Sep F Sep Oct Sep Sep Sep Sep Sep Sep
0.0 0.0 12.1 95.9 -5.5 -13.8 1082.3 809.6 13.3
Wednesday Wednesday Wednesday Wednesday Wednesday Wednesday Wednesday Wednesday Wednesday
14/10/2015 14/10/2015 14/10/2015 14/10/2015 14/10/2015 14/10/2015 14/10/2015 14/10/2015 14/10/2015
03:30:00 03:30:00 10:30:00 10:30:00 11:00:00 14:30:00 14:30:00 14:30:00 16:00:00
CN CN GB GB EC US US US US
CPI - % yoy PPI - % yoy Claimant count unemployment rate - % Change in claimant count - thousands Industrial production - % mom Prod. prices index - % mom Prod. prices index excl food and energy - % mom Retail sales - % mom Business inventories - % mom
Sep Sep Sep Sep Aug Sep Sep Sep Aug
2.0 -5.9 2.3 1.2 0.6 0.0 0.3 0.2 0.1
-0.2 0.1 0.2 0.1
Thursday Thursday Thursday Thursday Thursday Thursday Thursday Thursday
15/10/2015 15/10/2015 15/10/2015 15/10/2015 15/10/2015 15/10/2015 15/10/2015 15/10/2015
14:30:00 14:30:00 14:30:00 14:30:00 14:30:00 16:00:00 16:30:00
US US US US US US KR US
Empire State PMI - Manuf. general business conditions - index Oct Inflation excl food and energy - % mom Sep Inflation excl food and energy - % yoy Sep Inflation (CPI) - % mom Sep Inflation (CPI) - % yoy Sep Philadelphia Fed - business confidence - index Oct Policy rate - % Oct 15 Fed Dudley speaks on appropriate level of interest rates
-14.7 0.1 1.8 -0.1 0.2 -6.0 1.5
-6.8 0.1 1.8 -0.2 -0.1 -0.8 1.4
Friday Friday Friday Friday
16/10/2015 16/10/2015 16/10/2015 16/10/2015
11:00:00 15:15:00 16:00:00 16:00:00
EC US US US
Trade balance external EU - EUR bn Industrial production - % mom Univ. of Michigan cons. confidence - index US Job Openings by Industry
22419.5 -0.4 87.2 5753
-0.3 88.0
Aug Sep Oct P Aug
6.8
ABN AMRO
0
-6.0 -15.9 1200.0 900.0 13.1 1.8 -5.9 2.3 0.5
0.3
0.1 1.8 -0.2 -0.1 -1.0
89.0
Source: Bloomberg, Reuters, ABN AMRO Group Economics (we provide own forecasts only for selected k ey variables and events)
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