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Bonds: Weaker-than-expected US industrial production data weigh on rate expectations

By Alexander Bueso

Date: Monday 18 Mar 2019

Bonds: Weaker-than-expected US industrial production data weigh on rate expectations

(Sharecast News) - These were the movements in some of the most widely-followed 10-year sovereign bond yields:
US: 2.59% (-4bp)

UK: 1.21% (-1bp)

Germany: 0.08% (+0bp)

France: 0.46% (-1bp)

Spain: 1.19% (+0bp)

Italy: 2.50% (+0bp)

Portugal: 1.3% (-2bp)

Greece: 3.80% (-2bp)

Japan: -0.03% (+1bp)

Gilts came under slight selling pressure at the end of the previous week as investors paused for breath in the wake of the vote in Parliament, the night before, to ask the House of Commons to vote again on the Prime Minister's withdrawal proposal or otherwise approve an extension of Article 50.

Nevertheless, even if Theresa May were finally able to clinch the backing needed for her proposed Brexit deal, it remained to be seen whether Brussels would approve such a petition.

Against that backdrop, a weaker than expected print on US industrial production for February saw yields retreat on both the short and long ends of the US Treasury curve.

According to the Department of Commerce, US industrial production ticked higher at a month-on-month pace of 0.1% in February (consensus: 0.3%), with the latest manufacturing sector data revealing a 0.4% drop versus January (consensus: 0.1%).

That saw the odds of an interest rate cut by the Fed at their end 2019 meeting rise past 30%. Indeed, according to analysts at UniCredit Research, the so-called overnight-index-swap forward curve was left pricing-in just over one 25 basis point interest rate cut for over the next two years.

The Italian broker's own forecasts called for three cuts.

Across the Channel meanwhile, Portuguese bonds found a bid ahead of a decision by Standard&Poor's on the country's long-term debt rating which was due after the close of markets.


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