Headlines – International
- Markets across the continent have started to price in the increased potential for anti-euro candidates to win elections in France and Italy. Recent positioning in German and Italian bonds are hedges against a blow-up in the risk of a breakup in the common currency, said traders in London and New York. Six-month German securities have rallied more than benchmark tenors this month and open interest in two-year note futures has surged, suggesting investors are building up long positions in assets that are the closest to cash in terms of safety. The yield spread between Italian low- and high-coupon bonds has widened as traders bet against the latter, which would fall much more if the country’s creditworthiness is called into question.
- Treasury market signals Jury still out on Trump reflation trade. A gauge of inflation expectations used by the central bank to help guide policy was about 2 percent, holding below its average over the last decade of about 2.5 percent. The five-year, five-year forward break-even rate, which project the pace consumer prices will increase from 2022 to 2027, is struggling to climb too far from its record low set last year.
- Euro-area finance ministers on Monday poured cold water on a quick disbursal of new aid payments, with Athens and its creditors agreeing to pick up discussions in the coming days. Greek bonds rallied. Creditors are demanding that the nation institute tax, pension and labor reforms before they’ll sign off on an agreement. Bloomberg – (https://www.bloomberg.com/news/articles/2017-02-20/greek-bailout-deal-delayed-for-months-as-deadline-missed-again)
- Euro consumer mood weakens as oil pices advances. Consumer confidence deteriorated a bit in February, following several months of improvement. Still, levels remain safely above their long-term averages. While rising oil prices might have tempered the mood of households, better labor market conditions continue to provide strong support.