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Bonds: Yields retreat after US retail sales data, Moody's upgrades Portugal to 'investment grade'

Bonds

Bonds: Yields retreat after US retail sales data, Moody's upgrades Portugal to 'investment grade'

Mon, 15 October 2018
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(Sharecast News) - These were the movements in some of the most closely-followed 10-year sovereign bond yields:
US: 3.15% (-1bp)

UK: 1.61% (-2bp)

Germany: 0.50% (+1bp)

France: 0.87% (+0bp)

Spain: 1.68% (+0bp)

Italy: 3.55% (-3bp)

Portugal: 2.0% (-4bp)

Greece: 4.39% (-2bp)

Japan: 0.14% (-1bp)

Sovereign bonds were on the front foot almost across-the-board at the start of the week, pushing their yields lower in the process, on the heels of a weaker-than-expected reading on US retail sales volumes.

According to the US Department of Commerce, total retail sales volumes edged up by 0.1% month-on-month in September to reach $509.0bn, falling short of economists' forecasts for an increase of 0.7%.

In terms of quarterly rates of change, and when adjusted for changes in inflation, the rate of growth in retail sales only slowed from 3.8% over the second quarter to 3.5% over the latest three-month stretch, explained Andrew Hunter at Capital Economics, who was forecasting US GDP growth of 3.0% in the third quarter of 2018.

But Hunter added: "That said, sales growth looks most likely to slow in the fourth quarter as that boost [from tax cuts] starts to fade, and we still expect a more marked slowdown in real consumption growth over the course of next year."

Back on the Continent, the spotlight was on Monday's deadline for European Union countries to submit their budget proposals to Brussels.

In particular, some analysts said EU leaders might put the spotlight on Italy's expected challenge of the bloc's fiscal rules as soon as Wednesday's leaders summit.

Against that backdrop, Spain's budget proposals for next year also drew some attention on Monday, with the government in Madrid trimming its forecasts for the rate of growth in the country's gross domestic product in both 2018 and 2019 by one tenth of a percentage point, to 2.6% and 2.3%, on the back of lower estimates for net imports in each of those years.

In their proposal sent to the EU Commission, officials in Madrid stood by a previous target for Spain's public deficit next year worth 1.8% of GDP, thanks to proposed tax hikes, which would also serve to finance the current government's spending pledges in what some observers believed might end up turning out to be an election year.

Nevertheless, it remained to be seen whether the main opposition parties would allow the budget to pass, especially in the Senate.

As well, Spain's main business lobby, the CEOE, questioned the underlying tax revenue assumptions contained in the budget blueprint, highlighting what it said was a mistaken emphasis on current spending instead of investment.

On a more positive note, after the close of markets on the preceding Friday, Moody's raised its rating on Portugal's long-term sovereign debt by one notch to Baa3, taking it back into 'investment grade'.

The ratings agency cited the "broadening" in the country's growth drivers and its improved external position as the reasons for the move.

Portugal's debt-to-GDP ratio fell by 4.5 percentage points to 124.7% in 2017 and Moody's said it was set to continue improving gradually and to reach 116% of GDP by 2021.