Thursday saw a fall in prices of government bonds of the Euro Zone and practically no initial gains due to rate cut not living upto expectations and a stronger than expected forecast of US economic growth.
The Worst performance was from the two year yield bonds. David Blanchflower who is one of the policymakers from the Bank of England called for a rate cut to set right the ongoing economic slump at next week’s BoE policy meeting. This resulted in an increase of debt prices and the bonds session went on a see saw ride.
The US Economy growth perched at 3.3 percent as compared to the forecast of 2.7 percent pointed to a softer debt market tone.
Some other reasons for the fall in bond market included announcement of rate cut prospects the previous day by Axel Weber and Lorenzo Bini Smaghi, officials from the European Central Bank. Lucas Papademos, the vice president of ECB said interest rates may require to be increased in the coming days. As a result of these factors, Wednesday saw the biggest intra day fall in the market.
There is a balance between risk apetite and risk aversion as the fragile global context did not give reason for any major sell off according to Patrick Jacq from BNP Paribas, Paris. Patrick is also an interest rate strategist of the Euro Zone. With a flattened to par two to ten year yield curve, the bond market certainly looks grim.
