Supply Trends Resurface: Analyzing the Impact on Market Dynamics
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Supply is coming to the fore again
Usually, the impact of individual primary market actions on valuations is fleeting. At least if they are not accompanied by expectations shifting towards materially higher issuance volumes in general. The latter seems to have played a part in the US Treasury sell-off where in particular the last 30Y auction has left a bitter aftertaste. This week the US Treasury will sell a new 20Y bond tomorrow and tap a 30Y inflation-linked bond on Thursday.
In the eurozone, weekly government bond auction volumes are likely to see their trough this week. In the wider market, the trough may even be behind us already, at least judging by issuance patterns of the past years and the new bond deals that are already lining up. In government bonds, it is Finland that usually ends the summer issuance lull with the launch of a new bond in the final week of August. This time it has flagged a new 5Y bond. In the supranational, sub-sovereign and agency sector, the German KFW and Dutch BNG mandated deals yesterday, and the EFSF sent out an RFP for an upcoming transaction last week.
Supply activites should have seen their summer trough by now
Today's events and market view
It may feel like summer still with large daily market moves on seeming little outside impulses. But primary markets may have now seen their trough in the eurozone. In current conditions, the impact of supply could be more noticeable, especially on days when other drivers are absent. This week though US Treasury supply remains in the spotlight with the upcoming 20Y sale tomorrow.
As for today, not many market-moving data points are on the calendar. Of note are the existing home sales data out of the US. With a view to the Jackson Hole symposium at the end of the week, the scheduled Fed speakers today – Barkin, Goolsbee and Bowman – may get a little more attention than usual.
