EU Leaders pressure Treasuries

With Merkel and Sarkozy meeting in Paris has US treasuries under pressure. The respective leaders want to rewrite the EU treaty allowing a new one to contain a debt turmoil clause, reducing refuge demand. The long end of the US curve is leading the losses, with 10’s and 30-years backing up +7bps. Even with Italy announcing an austerity plan to cut the euro region’s second-biggest debt has the market believing that we are seeing stronger coordinated efforts to stop the Euro-contagion.

This coordinate effort is having a large impact on EU periphery debt. Spanish 10-year product is trading at a seven-week low while Italian 10’s are trading at their highest price (inverse relationship) in four months after Prime Minister Monti announced +EUR30b of measures to cut the nation’s debt load. With Italian yield falling further away from the psychological +7% level, has the Btp/Bund spread tightening to as little as +3.94% for 10’s (the least since the end of October). EU leaders are scheduled to meet at the end of the week to address the region’s debt crisis after the failure of their fourth rescue blueprint intensified.

Treasuries briefly pared their losses after the ISM non-manufacturing index fell to 52 in November from 52.9 a month earlier. Current weekly surveys maintain their bearish bias towards US product. Last weeks flight out of risk assets showed more investors adding US debt to their portfolios. The market expects yields to be squeezed higher until we get a clear indication from EU leaders this week what the course of action will be taken.

The Nikkei closed at 8,695 up +52. The DAX index in Europe was at 6,106 up +25; the FTSE (UK) closed at 5,567 up +16. US indices remained in positive territory with the Dow currently trading at 12,168 up +149.

     

    Other links:
    Make or Break for the EUR this week?

    U.S. Ten-Years:

     

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    Dean Popplewell

    Dean Popplewell

    Vice-President of Market Analysis at MarketPulse
    Dean Popplewell has nearly two decades of experience trading currencies and fixed income instruments. He has a deep understanding of market fundamentals and the impact of global events on capital markets. He is respected among professional traders for his skilled analysis and career history as global head of trading for firms such as Scotia Capital and BMO Nesbitt Burns. Since joining OANDA in 2006, Dean has played an instrumental role in driving awareness of the forex market as an emerging asset class for retail investors, as well as providing expert counsel to a number of internal teams on how to best serve clients and industry stakeholders.
    Dean Popplewell