Bond yields drop back

Moves differ depending on central bank actions

Chart of the Day

Following the sharp moves last week, changes in developed market 10-year bond yields yesterday ranged from a fall of 18 bp in Australia to an unchanged yield in Switzerland. The large move in Australia partly reflected unprecedented bond buying by the RBA amid its YYC (at the lower end), while the large moves in the eurozone occurred after an ECB official said it would act to keep yields down.

Macro

The US ISM manufacturing index fell to 58.7 in January, which left it consistent with industrial production growth of around 3% YoY.

The prices paid component of the manufacturing ISM rose further in February and suggests inflation will jump.

US construction spending growth rose to 3.4% YoY in December. There’s a huge divergence in components: residential spending growth stands at 20.7% while non-residential growth is at -4.8%.

Core inflation in Germany jumped to 2% at the start of the year.

In the UK, the flow of household consumer credit and mortgage credit fell in January - with households using money to pay down credit cards, there is a question about how much pent up demand there really is.

Markets

The big news was that equity markets quickly recouped some of their losses from last week, although the tech/growth stocks have still be dented by the jump in real yields.

The VIX and MOVE both dropped back yesterday as tempers cooled.

Despite basically unchanged real yields, gold prices fell further, albeit modestly.

There was an interesting divergence between oil and gasoline prices.

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