HomeContributorsFundamental AnalysisRisk-Off Sentiment Hit The European Fixed Income Market

Risk-Off Sentiment Hit The European Fixed Income Market

Market movers today

Today, German industrial production for December is set to be released. Industrial production was solid throughout October and November, with 0.5% and 0.4% monthly increases, respectively. However, factory orders saw a monthly decline in November, following October’s strong increase, which indicates declining industrial production in December. Thus, we estimate the December figure will show a monthly decline of 0.4%.

Chinese FX reserve data due to be released this morning is likely to attract some attention, as we saw significant movements in the Chinese currency in January.

The ECB’s Jens Weidmann speaks in Mainz.

Selected market news.

Risk-off sentiment hit the European fixed income market yesterday and particularly France and Italy came under strong pressure. The 10-year yield-spread against Germany surged to the widest level since 2012 for France and 2014 for Italy, respectively.

The reason is the rising political risks in Europe, where focus is on France and the growing concerns that Marine Le pen could win the French Presidential election after the Francois Fillon ‘fake job’ scandal. The ‘excuse’ or explanation from Fillon yesterday afternoon did little to calm the markets.

The sour sentiment in the European government Bond might continue today after the IMF overnight said that Greece is falling short of budget-surplus targets set out under the bail-out agreement. The IMF also said that Greece’s debt is unsustainable. However, the ESM/EFSF recently agreed a new debt package with Greece that should ease the debt burden.

Holland is another political hotspot this year. Yesterday, we published a piece on the election in the Netherlands, which is scheduled to be held on 15 March. Here, we argue that although the probability of a PVV government is low, in our view, investor sentiment is unlikely to remain complacent and some risk premium should be included when the election date draws nearer.

Danske Bank
Danske Bankhttp://www.danskebank.com/danskeresearch
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