In what seems a recurring theme bonds opened heavy lead by German bonds, stabilized and then proceeded to rally back by the close. Despite this similar pattern there was more for markets to review over the week, European PMI’s on net came out better than expected, US Non Manufactuing ISM was strong (albeit employment was lower) and the BoE Governor Mark Carney was on the wires saying the market was under-pricing no deal and then in the same breath that the path of BOE rates might not be high enough. On net surprised yields are higher especially given JPM survey.
Aussie rates traded tight range as expected pre-GDP, as well with the Australian Bureau of Statistics announcing that net exports were slightly larger drag on the economy than expected, but a 1.6 per cent increase in government consumption had made up for it.
Also, on Tuesday, the Reserve Bank announced it was keeping the official cash rate at a record low of 1.5 per cent for the 31st month in a row, a move widely expected. In majors bank spreads continue to grind tighter led by mid curve with ongoing demand for 2-3Yr maturities
The Bank of England continues to worry about the consequences of the Brexit saga. In some recent news they are preparing for the worst and have started to support the liquidity requirements for the banking system with additional loan facilities in case the markets will start to freeze up again.
Meanwhile, bond yields in the European bond markets have started to move up slightly from recent low levels on the back of some better figures out of the US and on the hope that the US/China trade despite is coming to an end. The German 10 year government yield has moved up from a recent low of 0.09% back up to almost 0.20% (more than double!!) and the 5 year yields have moved from negative 0.40% to a less negative 0.30%.