JGBs prices were modestly higher, dealers noted that one prudent megabank had been selling mid-term JGBs to shift into long-term JGBs for the last two sessions ahead of Japan's Golden Week holidays. On the other hand, several regional banks were noted to be selling long-term JGBs to take profits before buying mid-term JGBs. (RTRS)
Moody's have released a report on China, saying that that their outlook is positive with strong mid-term growth prospects and strong debt dynamics, but reform is needed to maintain growth. (Sources)
China's economic growth is expected to rebound in the coming months, according to several government officials. (Shanghai Securities)
T-notes settled in minor negative territory yesterday following a volatile session. Fixed income markets were generally lower as funds switched out of bonds and into equities, the low US Treasury prelim month-end extension not helping demand for US paper. The 5y note auction was particularly strong, with the second lowest yield on record for this maturity, this sent 10y futures over 8 ticks higher. Bonds experienced some extreme movements after the Fed saw a more hawkish lean in when the first rate hike may occur, however a dovish Bernanke conference, where hints of further QE were made, boosted 10y futures into the close and saw the 10y yield back below 2.0%. At the pit close, t-notes settled at 131.22, down 3 ticks. Finally, the DJIA finished at 13090.72, up 0.69%; the SPX finished at 1390.69, up 1.36%; and the NDX finished at 2709.62, up 2.69%. T-notes were trading broadly flat heading into the European session at 131.23, price action settled down somewhat following volatile trading overnight after the FOMC rate decision. Last price taken at 0630BST. (RANsquawk)
The FOMC left rates unchanged as expected at a range 0.00-0.25% and the Fed said it sees exceptionally low rates though at least late 2014, though Richmond Fed's Lacker dissented the decision, as he did in March. The Fed's discount rate was also left unchanged at 0.75%. (RTRS) The Fed is to continue its programme to extend its maturity of holdings, and did not comment on when the programme might end. Fed officials noted a rise in inflation, though this was largely attributed to energy cost hikes and are temporary.
The latest Fed projections showed an increase in members forecasting a rate hike in 2014 to 7 members from 5 previously as 2 members pulled forward their projections from 2016. (RTRS) The projections also included the Fed raising the forecast for 2012 GDP growth to between 2.4-2.9%, lowering the forecast for 2012 unemployment to 7.8% and raising the forecast for 2012 core inflation to 1.8%-2.0%.
Fed's Bernanke said in his press conference that the Fed remain entirely prepared to take additional balance sheet actions if necessary. (RTRS)
Yesterday's USD 35bln 5y note auction drew a yield of 0.887% vs. exp. 0.905%, WI stopping at 0.895%, the b/c was 3.09 vs. avg. 2.98 (prev. 2.85), indirect bidding was 47.5% vs. avg. 44.63% (prev. 42.00%) and the allotted at high 11.97%. (RTRS)
BarCap US Treasury month end extension seen at +0.01yrs.
LCH.Clearnet raised its margin requirements on Spanish and French bonds, with the key 10-15y sector requirements for Spanish bonds raised by 170bps to 12.9% and for similar duration French bonds raised by 30bps to 6.40%. The changes come into effect from the close of business on May 2nd. (Sources)
EU Officials believe they have enough legal leeway to relax budget deficit targets for Eurozone states without violating the Stability and Growth Pact, though the plans risk a serious showdown with Germany. (Telegraph) There are elements of flexibility when growth is lower than expected," said a senior Commission strategist. "So long as a country is doing its homework and taking 'effective action', we can show some flexibility."
ECB's Draghi has urged the Eurozone to adopt a "growth compact" to boost economic prospects as he scaled back his hopes for an early economic rebound in the monetary union. (FT-More) French Socialist candidate Hollande has also pressed for a growth compact saying that Germany must accept it is the only way to solve the Eurozone crisis. German Chancellor Merkel has somewhat agreed with Draghi, saying that budget austerity alone was not the whole answer to the European economic crisis.
The ECB and the Eurozone are working on an initiative to allow cash-strapped banks direct access to funding from the ESM, with examination of the process to take place over the next two weeks. (Sueddeutsche Zeitung)
The IMF said the largest Spanish banks appear to be sufficiently capitalized and have strong enough profitability to withstand any deterioration of economic conditions, and although Spain does need to deepen its financial sector reform, there is an "appropriate sense of urgency" from the Spanish authorities focused on strengthening the banking sector. (RTRS) The comments came following the IMF stress tests on 90% of domestic banks in Spain that showed most would be resilient to any large shocks, with some pockets of weakness still.
A proposal for a 6.8% increase for next year's EU budget but forward by the European Commission has provoked harsh reactions from member states that have been slashing spending under Brussels-driven fiscal austerity. (FT-More)
The caretaker Dutch government went into talks with opposition parties yesterday to secure backing ahead of a deadline set for this Monday for a revised budget package to keep the country within EU fiscal rules. (WSJ)
Six weeks before Ireland is set to vote on the EU fiscal treaty, the government's campaign to vote 'yes' is in danger of unravelling as attitudes towards austerity harden and instability in Europe feeds into the debate. (FT-More) The Irish Trade Union yesterday said it could not support the treaty, with the head of the Congress of Trade Unions commenting that "nobody in our ranks is in agreement with the fiscal treaty … we do not see any merit in it."
As the second round of French elections approaches, businesses in France are looking more warmly towards Socialist candidate Hollande. (FT-More) The employers' body Medef, previously a backer of current President Sarkozy, has now said the institution is prepared to work with the next government "whomever it may be."
BarCap Pan Euro Agg month end extension seen at +0.10yrs.
RBNZ Official Cash Rate (Apr) M/M 2.50% vs. Exp. 2.50% (Prev. 2.50%) (Sources)
S&P have said New Zealand's government failure to make surplus in 2014-15 would not necessarily trigger a downgrade (Sources)
The head of the Israeli military believes Iran will not build an atomic bomb, arguing that the country's leadership is 'rational'. (FT-More)
WTI crude futures traded in little direction overnight, heading into the EU session WTI crude futures were seen down USD 0.07 at USD 104.08. Last price taken at 0630BST. (RANsquawk)
China hopes that shale gas could become a cheap and plentiful new fuel source in the same way that it has in the US, where domestic gas prices recently hit a 10-year low. (FT-More) For policy planners in Beijing, shale gas could be part of the answer to reducing China's dependence on imported energy.
China extended what it may have intended as an olive branch to the US, Japan and Europe in their dispute over rare earths even as it defended its export controls. (WSJ) China's Ministry of Industry and Information Technology has invited foreign companies to team up with local firms on rare-earth technology ventures.
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