Bonds: Gilts drift lower ahead of MPC, Japan still in focus
These were the movements in some of the most widely-followed longer-term sovereign bond yields:
US: 1.72% (+1bp)
UK: 1.39% (+3bp)
Germany: 0.11% (+2bp)
France: 0.46% (+3bp)
Spain: 1.51% (-1bp)
Italy: 1.34% (+3bp)
Portugal: 3.41% (+7bp)
Greece: 8.93% (-4bp)
Japan: -0.09% (-1bp)
Gilts were among the session’s worst performers ahead of the result of Thursday’s Monetary Policy Committee meeting, alongside a large move higher in cable, which ended the day up by 0.75% to 1.4233.
Losses in longer-dated UK bonds came against a small ‘up-tick’ in risk appetite globally, thanks in part to somewhat better than expected inflation numbers for March out of China.
Nonetheless, the risks bearing down on the global economy were not far from investors’ minds.
Be that as it may, for Britain at least Pantheon Macroeconomics’s chief UK economist Samuel Tombs pointed out how a flat or inverted yield curve “often presages a recession, but the curve remains upward sloping”.
“Growth is slowing, but leading indicators do not point convincingly to impending recession”, he said in a research note sent to clients.
Japan was not far from investors’ minds following the recent sharp appreciation in the nominal value of the yen.
That prompted Bank of Japan governor to tell an audience on Monday that: “the BOJ won't hesitate to take additional easing steps if needed to achieve its inflation target.”
Recent yen strength led Japan’s top-rated to change his call for no further stimulus from the BoJ, Bloomberg reported.
Rate-setters in Tokyo will not expand their bond buying programme when they next meet, nor will they cut the main deposit rate on bank deposits further into negative territory, Mitsubishi UFJ Morgan Stanley Securities’s Jun Ishii said.
“The BOJ must take action without hesitation,” he said. “With the strong yen and weak stocks, the risks are rising for the trend in prices to take another step down.”
Against that backdrop, the French Treasury announced its intention to sell 20 and 50-year debt via a syndicate of banks, for the first time since June 2014.
Over the weekend, speaking at the Ambrosetti Workshop, in Cernobbio, Italy ECB executive board member Yves Mersch told an audience that extraordinary monetary measures to bolster growth could eventually begin to exhibit so-called ‘diminishing returns’.
That came as World Bank chief Kaushik Basu warned that world economic growth could take “some time to recover”, although he was not forecasting a 2008-style crash, and urged coordinated action to tackle the slowdown.
Contrary to IMF chief Christine Lagarde, Basu suggested to the above media outlet that the UK might thrive after Brexit, the Sunday Telegraph reported.
He also forecast Brent oil prices would remain at approximately $40 a barrel until the end of the decade.
To take note of, according to the Sunday Telegraph Yu Hongding, a director of the Chinese Academy of Social Sciences, predicted a major devaluation of the yuan and well-targeted fiscal stimulus would be needed for China to break out from two concurrent deflationary spirals.