Let the fun and games continue

Last Friday had that typical post-Thanksgiving feel about it in bond markets.

Traditionally, it’s a Friday afternoon where liquidity is drained from the offices in the City, and more money is made in the City’s restaurants and bars – the feel was no different this year.

Liquidity was thin, as it has been of late. Gilt prices fell, and the middle of the curve was swamped with sellers, something that was clearly exacerbated by poor liquidity.

There is plenty of speculation, ahead of the Autumn Statement, that Chancellor George Osborne will announce government guarantees for UK bank debt; direct investment by pension funds in infrastructure; increased taxation for the banks, and higher spend on roads and rail.

Apart from that, this week looks to promise more of the same, I’m afraid, with politics continuing to be the main driver of events.

There’s a meeting of European finance ministers. Greece must finalise the €8 billion (£6.9 billion) of aid, although more pontificating on the European Financial Stability Facility (EFSF) is most likely.

Furthermore, there’s likely to be stacks of issuance this week, as well as the European Banking Authority publishing the capital shortfalls of banks across the eurozone.

Markets appear to be constructive this morning, with gilt yields rising, credit indices tighter and peripheral bonds performing better. There are patchy rumours of a loan from the International Monetary Fund to Italy, and these seem to be buoying risk-on trades.

Risk-on Mondays.

As the week progresses, we bond types tend to become increasingly worn out, particularly during these times, and this is reflected in markets that tend to tail into risk-off Fridays. Let’s hope this week is different!

Looking ahead this week, and some economic data to look forward to. Here’s to name but a few: UK CBI reported sales; US new home sales; UK mortgage approvals; UK M4 money supply data; US Case-Shiller house price data; US consumer confidence; German retail sales. Thursday brings global manufacturing PMI revisions, and US ISM data. Friday brings everyone’s favourite, US non-farm payrolls, expected to have grown by 120,000. Let’s see.

Let’s not get too optimistic!

Rating agency Moody’s has warned that all Eurozone sovereigns are in the line of fire for some rating action. S&P has already cut government-less Belgium one notch from AA+ to AA with negative outlook. Let the fun and games continue.

Bryn Jones is fixed income director at Rathbone Unit Trust Management and investment manager on the Rathbone Ethical Bond and Rathbone Strategic Bond funds.