Bonds: Morgan Stanley now sees one Fed rate hike in 2016, down from three

US: 1.9627% (-2bp)

UK: 1.551% (-2bp)

Germany: 0.279% (+1bp)

France: 0.622% (+0bp)

Italy: 1.30% (-2bp)

Spain: 1.466% (-2bp)

Portugal: 2.927% (-1bp)

Greece: 8.743% (-17bp)

Japan: -0.039% (-3bp)

Yields slipped practically across the board at the start of the week, ahead of central bank policy meetings in the US and UK and after the latest industrial production and retail sales figures over the weekend missed forecasts, although some analysts put the latter down to statistical and seasonal quirks.

Ahead of the Fed’s next policy decision, on 16 March, economists at Morgan Stanley slashed their forecast for three interest rate hikes in 2016 to just one, in December.

They predicted that the rate of growth in gross domestic product would remain below 2.0% through 2017, down from the 2.4% pace seen in 2015.

The yield on the benchmark 10-year US Treasury note would plumb a new cycle low of 1.45% by next September with the 2s10s curve flattening from 1.0% to 0.80% by year-end.

Assuming Britain does not leave the European Union, then Gilts should trade in-line with US Treasuries, Morgan Stanley said.

The broker was now pricing in a 30% probability of a global economic recession this year.

“However, solid consumer spending, subdued oil prices and expansionary monetary policy argue against a recession materialising. With monetary stimulus likely becoming less effective, fiscal policy and structural reforms gain importance for shaping the macro outlook,” Elga Bartsch and Chetan Ahya wrote in a research report sent to clients.

Back in the euro area, French central bank chief Villeroy de Galhau said the ECB’s latest policy stimulus was guided by its mandate to return inflation to its 2.0% medium-term target.

De Galhau emphasised the ECB’s “strong determination” to meet its inflation target and underlined that it still had many policy options at its disposal to meet it.