Europe did have a healthy rally in many core markets with DAX (+1.56%), CAC (+1.6%), FTSE (+0.7%) and IBEX (+2.73%) at least they were until Janet Yellen started speaking at her semi-annual congressional testimony! The US market opened up over +150 points in the DOW but uncertainty mid-session took values back to negative. After a brief interlude bids were starting to be hit and as oil traded lower then so stocks followed. Closing on the days lows has further undermined confidence with DOW futures falling an additional fifty points after the close.
Listening to Janet Yellen’s three hour address, the one point we found interesting was around the idea of negative rates and the on-going decision of paying for Excess Reserves. Her exchange around this point she supported by claiming the FED actually benefits more from the dividends they receive against the percentage they pay (25BP) for the reserves. The other point highlighted was around negative interest rates. Despite many others already implementing this strategy the FED declared it wishes to debate it further and also needs to clarify the legality of such a move. Stocks did not like what they heard and again equities drifted lower as the price of oil declined. Rumors that Iran is forward selling its supply but for Euro’s was one of the reasons for its strong performance today.
Interesting reaction within the Bond market also with the front-end losing ground (+2bp) to close this evening around 1.71%. The longer end (10’s and Bonds) performed better with a decline of around 2bp a-piece. 10’s were last seen 1.71%. In Europe Bunds followed up to a point. the 10yr Bund was last seen at 0.24% (+0.01bp) which closes the spread this evening at +147bp. Interesting that the German curve was steepening whilst the US flattens. Meanwhile, peripherals reacted well but we will have to see how this plays out tomorrow given the late turn in stocks, bonds and oil late in the US session. Closes were as follows: Italy 10yr 1.63% (-5bp); Greece 10yr 10.66% (+19bp); Turkey 10.43% (-10bp) and finally 10yr Gilts closed 1.41% (unchanged again).