Bonds: Gilts power ahead as US growth forecasts are pared

These were the movements in some of the most widely-followed 10-year sovereign bond yields:

US: 2.03% (-5bp)
UK: 1.66% (-7bp)
Germany: 0.54% (-3bp)
France: 0.87% (-3bp)
Italy: 1.57% (-1bp)
Spain: 1.75% (-3bp)
Japan: 0.22% (-2bp)
Greece: 8.90% (+30bp)
Portugal: 2.74% (+5bp)

Continuing worries surrounding China sparked another round of risk aversion in global capital markets, to the benefit of sovereign debt

Reports earlier in the day indicated that some banks in Shanghai had stopped taking shares of small companies as collateral for loans, sending Chinese stocks lower.

The buying pressure accelerated later in the day following the release of a weaker than expected reading on US retail sales that led Barclays to cut their forecast for the rate of growth in first quarter gross domestic product from 0.7% to 0.4%.

In the afternoon, two Fed speakers put a brave face on the current market backdrop.

As long as the US economy continues to grow at an above-trend pace, then the recent move lower in inflation expectations is not worrisome, the president of the Federal Reserve bank of New York said in a speech.

Validating that view, perhaps, economists at Barclays would write to clients saying telling them that: “We believe pessimism about US growth is overdone in light of solid labor market momentum.”

Their opinion on the Eurozone on the other hand was more nuanced, “We believe deflationary pressures and tighter financial conditions will prompt further ECB actions around mid-year […] and delay lift-off by the BoE until Q4 16,” they said.

At one point in afternoon trading, the yield on the benchmark 10-year US Treasury note dipped below the 2.0% mark.