Week ahead: little risk appetite ahead of the Greek elections

Apart from the continued talks around when Spain will make the official request for aid to its banks (see spanish-bailout-to-surface-this-weekend), the Greek elections are definitely the main thing to follow. The election is too close to call, and we will not receive any more polls ahead of the voting. An unfavourable outcome could push Greece out of the Euro zone, so the willingness to take aggressive risk positions ahead of the elections is likely to be very limited. That said, after the correction in German bond yields seen earlier this week, it is far from certain that we would see new yield lows next week.

Economic data will likely continue to come in on the weak side. The surprising rate cut from the People’s Bank of China earlier this week already implied that this weekend’s economic data package will be bad. We do not expect encouraging data from the US either, with the May retail sales report on Wednesday being the main thing to watch.

On the issuance front, upcoming auctions could put some pressure on US Treasuries. USD 32bn of 3-year notes will be sold on Tuesday, USD 21bn of 10-year notes on Wednesday and USD 13bn of 30-year bonds on Thursday. In the Euro zone, the main focus will be on Italian BTP auctions on Thursday, while the Netherlands and Austria will sell bonds tomorrow and Germany on Wednesday.

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