Lingering concerns about the economy prompted investors in Japan to scoop up government bonds, keeping yields near 14-month lows on Wednesday.
Official figures showed continuing year-on-year deflation in Japan, increasing pressure on the Bank of Japan to withdraw its earlier forecast that deflation would end in the coming year.
Other Investors who were buying to earn interest income during next week’s Golden Week holiday – during most of which Japanese markets are closed – also helped to push down yields on the 10-year bond to 1.255 per cent, half a basis point above last week’s 14-month low.
In the US, Treasury prices slumped and yields went sharply higher after a surge in new home sales offset a weaker-than-expected consumer confidence index.
The yield on the benchmark 10-year Treasury rose 6 basis points to 4.29 per cent after adjusted new home sales in March rose to 1.43m units against expectations of about 1.2m units. The yield eased back to 4.27 per cent by late trade in New York.
Meanwhile, the Conference Board’s consumer confidence index fell for a third consecutive month, to 97.7 in April from 103 in the previous month. The forward-looking expectations index hit a 21-month low, as high petrol prices, a softer labour market and falling stock markets hit hurt optimism.
Reacting to the US news, eurozone government bonds retreated from their earlier price rises, and yields on the 2-year Schatz rose 2.1bp to 2.324 per cent. The 10-year Bund yield rose 0.7bp to 3.450 per cent. But concerns about weakness in the area’s economy had set the mood for much of the day and weighed on yields that hovered close to record lows reached in February.
End-of-the-month buying by pension funds helped push 30-year bond yields below the key 4 per cent level for the first time in about two months. The fall of 1bp to 3.996 per cent was also not far from the record low of 3.846 per cent. The French 50-year bond also hit the lowest yield since its introduction in February. Meanwhile, Sweden’s 10-year government bond was yielding less than the 10-year Bund for the first time in five years.
In the UK, gilt prices found support from an industry survey showing deterioration drops in British factory order books. The yield on the two-year gilt was 2.1bp lower at 4.549 per cent while the 10-year gilt was yielding 4.572 per cent, down 0.4bp.
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