ECB Announcement, Strong Auction Send Rates Lower Once Again

“The lady is not tapering” said European Central Bank President Christine Lagarde after the central bank announced it would reduce the size of its pandemic bond purchase program. Like the Federal Reserve, the ECB has come under pressure to taper its bond purchases in the face of rising inflation and rebounding economic growth. Lagarde’s comments indicate that this reduction in bond buying is a recalibration rather than a fully-fledged taper, which Lagarde explained would not be appropriate in the face of the pandemic and other growth headwinds. 10-year government bond yields fell 5-7 basis points across the Eurozone as a result, a move which was partially mirrored stateside by a decline in swap rates and Treasury yields – pulled lower for the second day in a row by another strong Treasury auction. The 10-year Treasury yield would ultimately fall 4 basis points on the day to close at 1.30%.

Initial jobless claims hit a pandemic low (again). The Labor Department reported that initial unemployment claims last week dropped to 310,000, well below economists’ estimates of 335,000. Even though this week marked yet another pandemic low, claims remain well above pre-pandemic levels. While claims figures have grinded lower throughout the year, it’s possible that the figure will move higher over the coming weeks the impact of Hurricane Ida and the continued rise in COVID cases is felt in the labor market.

Prices paid by U.S. producers during August will be released tomorrow morning at 8:30a EST. Producer price data will give markets even more insight into inflation trends, one month removed from July’s PPI print which showed the highest year-over-year increase on record. Analysts expect headline PPI and core PPI to print at 8.2% and 6.6%, respectively.