We remain of the opinion that ultimately the Federal Reserve will have no other choice other than engaging in Yield Curve Control (YCC) when 10-year yields will get close to the pivotal 2%. Powell's speech last week was clear in saying that Federal Reserve will intervene to stop disorderly markets and the tightening of financial conditions making YCC very likely despite a booming economy scenario. This behaviour could lead to a severe monetary policy mistake.
In Europe, the market will focus on the ECB’s bond purchases data that are going to be released today to understand whether the central bank is acting on its promises to keep European sovereign bond yields in check. If the report disappoints, we might be facing another week of a selloff in European government bonds that will most likely stall with the ECB Interest Rate Decision and Press Conference on Thursday. We believe that a temporary increase of the PEPP’s pace is likely, which could focus on bonds of those more volatile countries, given the lack of collateral that the Euro area is suffering from.
Before the ECB monetary policy meeting on Thursday, it will be important to monitor Italy’s 3- and 7-year notes auctions as the recent 5-year BTP auction registered the lowest bid-to-cover ratio since June amid the selloff in European sovereigns. Last week, Italy’s green bond issuance attracted more than 80 billion euros in bids; however, it's important not to commit the mistake to compare such issuance with traditional BTP issuances. Indeed, last week's green bond was a debut for Italy in this space, coming at a time when the supply of these instruments continue to be limited while the green bond investors base continues to grow. On Thursday, Italy will test appetite for traditional BTPs for the first time since the weak 5-year Bond auction of February the 25th, driving sentiment for the whole periphery before the ECB interest rate decision.
Economic Calendar
Monday, the 8th of March
- Japan: Leading Economic Index
- Switzerland: Unemployment Rate
- Germany: Industrial production
- United Kingdom: BOE’s Governor Bailey Speech
- United States: Treasury Auction Allotment data for the 20-year note sale on February 17th
Tuesday, the 9th of March
- Japan: Overall Household Spending, Gross Domestic Product
- Australia: New Home Sales
- United Kingdom: BRC Like-for-like retail sales
- Germany: Trade Balance
- Europe: Gross Domestic Product
- United States: US Treasury Sells 3-year Notes
Wednesday, the 10th of March
- Australia: RBA’s Governor Lowe Speech, Westpac Consumer Confidence
- China: Consumer Price Index, FDI – Foreign Direct Investment
- United States: Consumer Price Index, US Treasury Sells 10-year Notes
- Canada: BOC Rate Statement, Interest rate Decision
Thursday, the 11th of March
- Australia: Consumer Inflation Expectations
- Switzerland: SECO Economic Forecast
- Italy: 3- and 7-year Bond sales
- Eurozone: ECB Interest Rate Decision and Press Conference, US Treasury Sells 30-year Notes
- United States: Continuing Jobless Claims
- Bank of Canada: BOC’s Schembri Speech
Friday, the 12th of March
- United Kingdom: Industrial Production, Gross Domestic Product, NIESR GDP Estimate, Manufacturing Production
- Germany: Consumer Price Index
- Eurozone: Industrial Production
- United States: Producer Price Index, Michigan Consumer Sentiment Index
- Canada: Unemployment Rate, Participation Rate, Average Hourly Wages