Leading indicators confirming spring growth peak

Bond and currency markets struggled to prioritise events in March, enduring significant volatility. Concerns regarding the escalation of the conflicts in Libya and the Middle East, that sent energy prices surging, were multiplied by the disaster in Japan that triggered fears of a nuclear fallout. Continuing efforts by the Eurozone officials to resolve the sovereign debt crisis and the European Central Bank’s signalling an imminent rate rise amplified the volatility in the markets…..

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• The rally in core government bonds after the quake was reversed mid-month as evidence of inflationary pressures around the world gathered pace. Credit markets, however, continued to perform well and by the end of the month were little changed from the levels at which they started. Financials were the biggest performers benefitting from the search for yield.

• Spain, Greece and Portugal saw their credit ratings downgraded by Moody’s. There was good news out of Ireland following another round of stress testing, while €24bn in new capital is required, senior bondholders will not be forced to take a haircut, which should provide a positive backdrop for financials in April, in particular for senior bank bonds.

• In currency markets, the yen initially surged after the earthquake but was able to quickly retreat from its highs following a coordinated intervention by the G7 and by end March it was at its weakest levels since mid-February against a range of currencies. The euro rose on the rate signal by the ECB moving from 1.38 to over 1.42 versus the dollar in the month and retreating to just below that level by close of March.

Source: BONDWorld – Global Snapshot April 2011