Bond yields head south again

With more of the focus on interest rate and bond markets, there is not much change in the main currency pairs this morning. The euro remains under a little pressure following dovish ECB commentary yesterday, dipping to $1.078 against the dollar and to 85.5p against sterling, while the pound is hovering just above $1.26 against the US currency.

Softer than expected US labour market data as well as the dovish ECB commentary saw sovereign bond yields head south yesterday. US and German 10-year yields both fell by around 10bps, though UK bonds, having lagged the move lower in yields last week, saw the biggest decline with 10-year yields falling by the best part of 20bps.

Following the marked re-pricing of central bank  policy rate expectations recently, the market now sees the ECB  cutting by almost 75bps over the first half of next year with the Fed seen lowering rates by at least 50bps over the same period. The BoE is expected to lag the other two central banks, with the market pricing in a cut of 25bps by mid-2024.

The number of job openings in the US fell quite sharply in October, with the September outturn revised lower also. This suggests the demand for labour is continuing to moderate, something the Fed says it wants to see to be confident that inflation will return sustainably to target.

The latest Exchequer returns in Ireland show a welcome recovery in corporation tax (CT) receipts in the key collection month of November, increasing by €1.3 billion – or 26.8% – on November 2022. This took total CT receipts for January-November to €22bn, almost €1.0 billion – or 4.2% – ahead of the same period last year.

Economic data due today include Euro area retail sales, the construction PMI in the UK, and the ADP employment report and unit labour costs in the US.