It’s comeback time for bond market vigilantes

 
Louisa Bojesen
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GUESS where we’ll be getting our cues from next week (hint: it’s an easy question). The answer, of course, is once again from the bond markets and the politicians. Fantastic. So something new to look forward to, then (or rather not). Glancing at the agenda, the most important political event to be aware of is the Eurogroup meeting of finance ministers tomorrow; yes, dear readers, ahead even of George Osborne’s Autumn statement, which is also being published tomorrow.

Greece is hoping to get its hands on a long awaited €8bn aid instalment, but the release of the sixth tranche of aid from Greece’s first bailout agreement has been dependent on written confirmation from Greece’s political leaders that they would stick to reforms necessary to receive Greece’s second bailout (agreed back in July).

Hopefully we’ll hear more about the details of the second Greek bailout. It would be surprising not to hear more noise also about necessary bank recapitalisations and how to make the EFSF more effective. We shall soon see.

It became very hard last week to avoid the jittery moves in the core European bond markets. We saw a terrible German 10-year bond auction, and core European spreads widen against their German counterparts, just as had been the case with periphery debt against core Europe. At the end of last week, Italian yields had once again jumped after an expensive bond auction, and core Germany and France saw yields widen as well – mostly on general worries and a growing lack of confidence in Eurozone sovereigns.

This week “supply” will be in vogue again – note that we’ll see bond auctions from Italy and Belgium on Monday, another Italian auction on Tuesday, Spain going to the market on Thursday, and last, but not least, another “core” bond auction on Thursday...this one from France. Granted, these auctions may not be the largest, but given the markets’ willingness to short a European country’s bonds on any given day, they will still be watched closely.

Given all of the above, the European data seems almost irrelevant. If anything, having already told us it would give us an update on the US’s sovereign rating before December, there could be more focus on whether ratings agency Fitch stamps the US with a “negative outlook” or even cuts its AAA status.

Louisa Bojesen is a CNBC anchor