Bunds European Bond Market Preview for Thursday August 30

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Bunds European Bond Market Preview for Thursday August 30

30.08.2007 10:00 Thursday
- European government bonds closed lower in yesterday's session, coming off of earlier highs during the US session as the tentative return of risk appetite lent upward momentum to global equities.

- In focus today will be the release of the German ILO unemployment rate at 2:00 ET, which is expected to decline to 6.2% in July from 6.3% in June. At 3:00 ET the August preliminary CPI y/y will be released in Spain. CPI is expected to remain unchanged from July at 2.3%. Italian consumer confidence will come into focus at 3:30, and is expected to decline to 106.7 in August from 107.4 in July. At 3:55 the German unemployment rate, and unemployment change for the month of August will come into focus. Unemployment change is expected at -30K, up from -45K in July, while the unemployment rate is expected to decline to 8.9% from 9.0% in July. At 4:00 Italian retail sales for the month of June will come into focus. Retail sales are expected to rise to 0.2% m/m from 0.1% in May, and are expected to rise to 1.0% y/y from 0.2% in May. After the European close, at 13:00 ET, French unemployment data will come into focus. The July unemployment rate is expected to remain unchanged at 8.0%, while the unemployment change is expected at -15K, up from the -30K in June.

- In new supply today Italy will be selling 3-year, 7-year, and 10-year bonds today at 5:00 ET. Italy is set to sell €2.5B in 3-year 4.5% BTP. The last auction covered 1.34x in the amount of €4.0B, and had an average yield of 4.43%. Italy is set to sell €2.0B in 7-year CCT. The last auction covered 1.63x in the amount of €1.5B, and had an average yield of 4.36%. Finally, Italy is set to sell €4.0B in a new 10-year 4.5% benchmark. According to wire reports yesterday, the Portuguese IGCP is likely to issued a new €3.0B 5-year benchmark bond in the second week of September. The report, citing sources, said that the issue would probably be tapped once before the end of the year, and then again early in 2008.

- Note that there are no central bank speakers scheduled in the Euro-Zone today.

- Over in the UK gilts also closed lower in the session, but managed to outperform their European counterparts.

- In focus today will be the release of the release of nationwide house prices for the month of August at 2:00 ET. House prices are expected to rise to 0.5% m/m in August from 0.1% in July, and are expected to decline to 9.7% y/y from 9.9% in August. Later in the session, at 4:30 ET, the final readings on M4 money supply, and sterling lending will be released. There are no estimates, however the prior readings for M4 money supply were 1.0% m/m and 13.0% y/y, while the prior reading on sterling lending was £24.8B. Along with this data, net consumer credit will be released, and is expected to decline to £0.8B in July from £0.9B in June, while net lending secured on dwellings is expected to decline to £89.2B form £9.6B, and mortgage approvals are expected to decline to 110K from 114K.

- Note that there is no new supply scheduled in the UK today, nor are there any central bank speakers scheduled in the UK today.

- On the US calendar today are the releases of preliminary second quarter GDP annualized, personal consumption, GDP price index, and core PCE at 8:30 ET along with initial jobless claims and continuing claims. At 10:00 ET the July help wanted index is scheduled to be released along with the second-quarter house price index.

- Regarding today's data, GDP annualized is expected to rise to 4.1% from 3.4% in the first-quarter, while personal consumption is expected to rise to 1.5% from 1.3%. The GDP price index is expected to remain unchanged from the first-quarter at 2.7%. Core PCE is also expected to remain unchanged in the second-quarter; the prior reading was 1.4%. Initial jobless claims are expected to decline to 320K from 322K last week, while continuing claims are expected to rise slightly to 2575K from 2572 last week. The help wanted index is expected to decline to 26 in July from 25 in June, and the second-quarter house price index is expected to decline to 0.3% from 0.5% in the first-quarter.

- In new supply today the treasury is scheduled to announce results from its 5-year note auction at 13:00 ET. The last auction, on July 26 covered 2.15x in the amount of $13B. The notes drew 4.64%. The auction before last covered 2.73x in the amount of $13B. The notes drew 4.94% at that auction. Recapping yesterday's auction results, the Treasury's 2-year note covered 3.97x, well above the 2.59x seen at the previous auction, and also well above the 2.81x average over the last 10 auctions. Indirect bidders took 32.5% of competitive bids. The notes drew 4.115%.

- Note that there are no central bank speakers scheduled in the US today.

- WSJ Fedwatcher Greg Ip said in an article published today that Bernanke is trying to break the market's association with market convulsions and rate cuts. Ip said that Bernanke is showing signs of a break with Greenspan by distinguishing between the Fed's two main roles of maintaining financial and economic stability. Bernanke is showing signs of a break with Greenspan by distinguishing between the Fed's two main roles of maintaining financial and economic stability. Ip said the Fed historically has had two major economic duties: Maintaining financial stability is one. Controlling inflation while preventing recession is the other. Ip points out that Greenspan saw these duties as inseperable. By contrast, Mr. Bernanke distinguishes between the central bank's two functions. Ip said that Bernanke is trying to break the market's association with financial crisis and rate cuts (says this association is the “Greenspan legacy”). Ip said that, “Mr. Bernanke may yet have to cut rates. But the longer he waits, the more likely he can break investors of the assumption that market convulsions lead to interest-rate cuts. There is evidence he is succeeding.”


Global Bond Yields

Yest Close 5D Ago 1M Ago 5D Change 1M Change
German 2 3.981 4.033 4.27 0.052 0.289
German 10 4.228 4.295 4.323 0.067 0.095
UK 2 5.369 5.284 5.488 -0.085 0.119
UK 10 5.053 5.004 5.198 -0.049 0.145
US 2 4.161 4.25 4.584 0.089 0.423
US 10 4.559 4.645 4.802 0.086 0.243
French 2 4.048 4.102 4.327 0.054 0.279
French 10 4.309 4.373 4.414 0.064 0.105
Italian 2 4.125 4.16 4.4 0.035 0.275
Italian 10 4.531 4.595 4.64 0.064 0.109
Japanese 2 0.88 0.907 0.99 0.027 0.11
Japanese 10 1.59 1.603 1.815 0.013 0.225


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