Daily Insight
Group Economics Macro & Financial Markets Research Nick Kounis , Kim Liu & Aline Schuiling
Is the Bund bubble bursting?
+ 31 20 343 5616
1 May 2015 • • •
Despite the recent jump in Bund yields we maintain our 3m forecast, implying yields will fall back We do expect a significant bounce next year, as ECB QExit expectations build Eurozone inflation no longer negative in April- should rise in coming months
Bund yields have jumped off their lows Over the last few days, 10y Bund yields have risen sharply,
Bund yields have jumped in recent weeks
reversing much of the sharp decline seen since the ECB’s QE
10y, %
programme began. The closing low for Bund yields was on 20
0.6
April, where they ended the session at 0.07%. Since then, they have steadily climbed, especially this week. At time of writing, the 10y yield stood at 0.31%.
0.5 0.4 0.3
Rise may be partly related to early QExit fears
0.2
Bund yields are at extremely low levels given that the economy is recovering and indeed prices look inflated relative to fundamentals. The recent abrupt correction raises the question whether the Bund bubble is bursting. Our view on this is not
0.1 0 Jan-15
Feb-15
Mar-15
Apr-15
yet. The rate rise may be partly related to some fears of an early ECB exit from QE given recent better inflation and money
Source: Bloomberg
supply data (see below). However, it may also have been exaggerated by an increase in supply and illiquid markets.
Eurozone inflation no longer negative The big bad deflationary spiral lasted all of 4 months.
ECB President Draghi likely to dismiss exit worries
Eurozone HICP inflation was flat yoy in April according to the
We think Bund yields will fall on the 3m horizon, and keep our
flash estimate, following -0.1% in March. The period of
forecast of 0.1%. ECB President Draghi will likely continue to
negative inflation has been accompanied by positive economic
dismiss QExit speculation in coming months as underlying
activity data surprises, suggesting we have seen a bout of
inflationary pressures are still weak, while the central bank will
good deflation. Meanwhile, core inflation was also steady at
want to be really sure that the outlook has sustainably
0.6% yoy, leaving it well below the ECB’s goal for overall
improved. Furthermore, we continue to expect that ECB
inflation in the medium term of close to but below 2%.
purchases will lead to acute scarcity of core government bonds. Although the ECB can and will likely expand its eligible
Inflation likely to rise in coming months
universe, this will not be a game changer.
We expect headline inflation to accelerate to well above 1% by year end as the depressing impact of energy prices fades. On
Bund yields to rise significantly in 2016
the other hand, core inflation will remain flat at low levels as it
We do expect a significant change in mood next year as the
continued to be dampened by past weakness in the economy.
recovery becomes more established and underlying
Next year will likely be another story though. Core inflation will
inflationary pressures build. We think that the ECB will end its
start to pick as the effects of the past depreciation of the euro
programme by September 2016, and it will no longer be able to
and the recovery of the economy feed through.
dampen exit speculation. Investors will not want to be standing at the platform when the train leaves. Indeed, we have raised our Bund yield forecasts in 2016, to 1.4% by year end, from 1% previously. A key trigger could be when the ECB extends its forecasting horizon to 2018 at its March 2018 meeting. Those forecasts should signal that ‘the mission is accomplished.’
2
Is the Bund bubble bursting? – 1 May 2015
Financial markets Currency markets
Close
Change 1 day
Change 5 days
Change YTD
EUR/USD USD/JPY
1.1222
0.0713
3.2098
-7.2562
119.43
-0.1839
0.3698
-0.3421
AUD/USD
0.7901
0.0507
0.9842
-3.2333
USD/CHF
0.9337
-0.4796
-2.1176
-6.0569
NZD/USD
0.7625
0.1576
0.3026
-2.1809
GBP/USD
1.5341
0.0457
1.0074
-1.5403
USD/SGD
1.3248
-0.0528
-0.5480
0.0151
USD/CAD
1.2100
0.0744
-0.6079
4.1756
Bond markets
Close
Change 1 day
Change 5 days
Change YTD
2-year German Govt Bond yield
-0.2210
0.0160
0.0430
-0.1230
10-year German Govt Bond yield
0.3660
0.0810
0.2010
-0.1750
Yield curve Germany
0.5870
0.0650
0.1580
-0.0520
2-year US Treasury Bond yield
0.5709
0.0139
0.0425
-0.0936
10-year US Treasury Bond yield
2.0396
0.0008
0.0819
-0.1316
Yield curve US
1.4687
-0.0131
0.0394
-0.0380
US 2-year sw ap rate
0.8259
-0.0166
0.0494
-0.0684
US 10-year sw ap rate
2.1296
-0.0354
0.1243
-0.1565
US sw ap curve
1.3037
-0.0188
0.0749
-0.0881
EU 2-year sw ap rate
0.0925
-0.0005
0.0235
-0.0825
EU 10-year sw ap rate
0.6680
0.0002
0.1670
-0.1440
EU sw ap curve
0.5755
0.0007
0.1435
-0.0615
-0.0050
0.0000
-0.0030
-0.0830
0.2782
0.0000
0.0007
0.0226
0.5600
-2.1500
-13.9500
Euribor 3 Month ACT/360 ICE LIBOR USD 3 Month JPMorgan EMBI Plus Sovereign S
373.4900
Equity markets
Close
Change 1 day % Change 5 days %Change YTD%
Nikkei 225
19,520
-2.69
-3.05
11.86
Hang Seng Index
28,133
-0.94
1.10
19.18
Hang Seng China Enterprises Index
14,431
-1.18
-0.33
20.41
Australian Stock Exchange S&P/ASX 200 Index
5,790
-0.83
-0.94
7.00
Singapore Straits Times Index
3,487
0.01
-0.44
3.63
Euro Stoxx 50 Index
3,616
-0.04
-2.23
14.91
S&P 500 Index
0.93
2,078
-1.36
-1.65
MSCI World Daily Total Return Gross USD
817
-0.44
0.64
6.49
AEX Index
488
-0.29
-3.01
14.93
14.12
22.44
-20.42
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
15
Close
Change 1 day % Change 5 days %Change YTD%
228
1.16
1.61
1,182
-1.92
-1.05
-1.15 -0.28
60
1.60
3.08
11.73 16.27
67
1.25
2.79
6,335
3.09
6.65
0.56
467
-2.15
-6.18
-20.81
3
Is the Bund bubble bursting? – 1 May 2015
Day
Date
Time
Country
Key Economic Indicators and Events
Period
Latest outcome
Consensus
ABN AMRO
Tuesday Tuesday Tuesday
28/04/2015 28/04/2015 28/04/2015
10:30:00 15:00:00 16:00:00
GB US US
GDP - % qoq S&P/Case Shiller house price index Conference Board cons. confidence - index
1Q A Feb Apr
0.6 0.9 101.3
0.5 0.7 102.2
0.6 0.8 102.0
Wednesday Wednesday Wednesday Wednesday Wednesday Wednesday Wednesday Wednesday Wednesday
29/04/2015 29/04/2015 29/04/2015 29/04/2015 29/04/2015 29/04/2015 29/04/2015 29/04/2015 29/04/2015
09:30:00 10:00:00 11:00:00 14:00:00 14:30:00 16:00:00 20:00:00 23:00:00
SE EC EC DE US US US NZ BR
Policy rate - % M3 growth - % yoy Economic sentiment monitor - index CPI - % yoy GDP - % qoq annualised Pending home sales - % mom Policy rate - % Policy rate - % Policy rate - %
Apr 29 Mar Apr Apr P 1Q A Mar Apr 29 Apr 30 Apr 29
-0.25 4.0 103.9 0.3 2.2 3.1 0.25 3.5 12.75
-0.35 4.3 104.0 0.4 1.0 0.5 0.25 3.5 13.17
Thursday Thursday Thursday Thursday Thursday Thursday Thursday Thursday Thursday Thursday Thursday Thursday
30/04/2015 30/04/2015 30/04/2015 30/04/2015 30/04/2015 30/04/2015 30/04/2015 30/04/2015 30/04/2015 30/04/2015 30/04/2015 30/04/2015
01:50:00 09:55:00 09:55:00 11:00:00 11:00:00 11:00:00 12:30:00 14:30:00 14:30:00 15:45:00 20:00:00
JP DE DE EC EC EC RU US US US MX JP
Industrial production - % mom Unemployment - % Unemployment change - thousands Core inflation - % yoy CPI - % yoy Unemployment - % Key rate % PCE deflator core - % mom PCE deflator core - % yoy Chicago Fed - business confidence - index Policy rate - % Policy rate - %
Mar P Apr Apr Apr A Apr Mar Apr 30 Mar Mar Apr Apr 30 Apr 30
-3.1 6.4 -14.0 0.6 -0.1 11.3 14.0 0.1 1.4 46.3 3.0 80.0
Friday Friday Friday Friday Friday Friday Friday Friday
01/05/2015 01/05/2015 01/05/2015 01/05/2015 01/05/2015 01/05/2015 01/05/2015 01/05/2015
01:30:00 01:30:00 03:00:00 03:00:00 09:30:00 10:30:00 16:00:00 16:00:00
JP JP CN CN NL GB US US
CPI - % yoy Unemployment - % PMI manufacturing - index (official) PMI non-manufacturing - index (official) PMI manufacturing - index PMI manufacturing - index Univ. of Michigan cons. confidence - index ISM manufacturing - index
Mar Mar Apr Apr Apr Apr Apr F Apr
2.2 3.5 50.1 53.7 52.5 54.4 95.9 51.5
6.4 -15.0 0.6 0.0 11.2 13.0 0.2 1.4 49.4
4.5 103.9 0.5 1.1 0.25 3.5
6.4 0.7 0.1 11.2 13.0
48.0
50.0 52.5 95.8 52.1
96.0 51.5
Source: Bloomberg, Reuters, ABN AMRO Group Economics (we provide own forecasts only for selected k ey variables and events)
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