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Prospects Daily: Russian corporate debt issuance surges, UK AAA rating cut, Mexico retail sales contract

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Financial MarketsItalian government bonds rose on Monday, with the 2-year note yield sliding 8 basis points to a record low of 1.25%, amid signs of progress in breaking the country’s political gridlock following the re-election of the president. Italy’s 15-year bond yield fell as much as 14 bps to 4.23%, the lowest level since December 2006.

Russian companies are issuing record volumes of hard-currency bonds this month, taking advantage of growing investor appetite for higher-yielding developing-country debt in the wake of Japan’s unprecedented monetary easing. Russia’s corporates have raised $8.39 billion thus far this month. Lukoil, the country’s largest non-state oil producer, sold $3 billion of bonds last week, and Russian Railways issued €1 billion ($1.3 billion) of a debut euro-denominated debt.

Egypt’s 5-year borrowing costs were priced at 15.43% at a new Treasury auction today, down 58 basis points from the previous auction, as $5 billion of aid from Qatar and Libya this month eased fiscal pressure on the government. The aid from Arab countries helped to replenish the nation’s foreign-exchange reserves that plunged more than 60% since the 2011 unrest.

High-income EconomiesUS existing home sales fell 0.6% (m/m) to an annual rate of 4.92 million in March after inching up by 0.2% in February, according to the National Association of Realtors, which attributed the drop in sales to inventory constraints.

The Euro Area’s combined budget deficit fell to 3.7% of GDP from 4.2% in 2011 according to Eurostat. Germany posted a surplus of 0.2% vs a deficit of 0.8% in 2011. Despite consolidation, Spain's budget deficit widened to 10.6% of GDP in 2012 from 9.4%. The French budget deficit fell to 4.8% from 5.3% in 2011, but was above its official target of 4.5%. Euro Area government debt rose to 90.6% of GDP from 87.3% in the prior year, with sharp increases in debt/GDP ratios of over 10 percentage points in Spain (to 84.2%), Ireland (to 117.6%), Cyprus(to 85.8%) and Portugal (to 123.6%).

The UK’s long-term foreign and local currency issuer default ratings were cut to 'AA+' from 'AAA' by Fitch Ratings on Friday, on a weakening economic and fiscal outlook. Eurostat data showed the country’s fiscal deficit and debt levels amounted to 6.3% and 90% of GDP in 2012, compared to 7.8% and 85.5% in 2011. Fitch is the second major rating agency to strip the UK of its triple A rating after Moody’s which cut in February.

Developing EconomiesLatin America and the Caribbean: Mexico’s retail sales contracted further in February to -8.5% (3m/3m saar), down from -5.5% in the previous month. This is the sharpest slowdown in 3 years.

Colombia’s industrial production continued to contract in March (-4.5% y/y), down from -1.7% (y/y) in February and fourth consecutive month of y/y contractions in the industrial production.

Middle East and North Africa:
Morocco’s inflation remained unchanged in March at 2.2% (y/y) from the previous month as food inflation continued to ease and is reported at 2.6% (y/y).