May 20, 2020 - Financial Occultist

German DAX rises 1.5%. France’s CAC up 0.9%

The major European indices are closing higher and in the process reversed earlier session lows. Provisional closes are showing:

German DAX, +1.5%. The low extended to -0.87%
France’s CAC +0.9%. The low extended to -1.39%
UK’s FTSE, +1.2%. The low extended to -0.68%
Spain’s Ibex, +1.2%. The low extended to -1.66%
Italy’s FTSE MIB, +1.1%. The low extended to -2.11%

In the European debt market, the benchmark 10 year yields are ending the session lower. The biggest decline are was France at -1.7%. It moved above the 0.0% level at the highs today (high yield reached 0.002%). Buyers came in and pushed yield down into the close (trading at -0.033%).

In the UK today, the treasurysold £3.8bn of three-year gilts at a yield of -0.003%. That was the first sale below 0% in the UK as investors look for further declines in UK rates as the battle Brexit and coronavirus headwinds.

Bank of England’s governor Bailey said that the challenge for the central bank is getting inflation to return to target.

German DAX rises 1.5%. France's CAC up 0.9%

Global monetary policy.

20-May-20 08:58 pm

Anirudh Sethi

Today’s 20-year Treasury auction will be the first since 1986

20-May-20 08:46 pm

Analysis

Anirudh Sethi

Interesting day in the bond market

The Treasury will jump into 20-year sales today for the first time in 34 years.

The initial auction of $20 billion is a relatively large one and is a reminder of how much debt the US is piling on. The notes are trading at 1.230%-1.220% on the bid/ask in the when-issued market. That puts them much closer to 30-year bonds (1.44%) than 10-years (0.71%).

“An auction concession of some sort is warranted; although we anticipate the new issue will be well absorbed even if it comes at a modest discount,” writes Ian Lyngen, head of US rates strategy at BMO.

The broader bond market is reluctant to send and clear signals at the moment. 10s have been in a tight range for six weeks now and it’s tough to envision a clear break on either side because you have inflation keeping yields up and the Fed keeping them down.