Bond yields fall further

Amid the ongoing turmoil in the banking sector – with the Swiss authorities announcing the sale of Credit Suisse to UBS and the major central banks taking coordinated action to enhance the provision of liquidity to banks – the euro and sterling are both managing to hold onto the gains they made against the dollar late last week, trading at about $1.0650 and a touch shy of $1.22 respectively this morning. This in turn sees the single currency-pound exchange rate again largely unchanged at around 87.5p.

Government bond yields fell at the end of last week as equity markets came under renewed pressure, and they have declined further this morning as stocks lose more ground, with US 10-year yields more than 10bps lower at 3.10% and equivalent German yields down 15bps to 1.95%.

In equity markets, the Euro Stoxx 50 fell by more than 1% on Friday, bringing its decline for the week to around 4%, and it has opened in the red again this morning.

The OECD in its latest economic update says “declining energy prices have contributed to a modest improvement in the global outlook” but that downside risks still  predominate, noting “concerns about financial vulnerabilities have risen, including in financial institutions”.

The Fed and the Bank of England announce their latest interest rate decisions this week, on Wednesday and Thursday respectively, with the market attaching about a 50/50 chance to both central banks raising rates by 25bps.

Economic data due this week includes flash PMIs in the US, Euro area and UK on Friday, as well as CPI inflation and retail sales in the UK on Wednesday and Friday respectively.