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Prospects Daily: Vietnam bond yields slide…US and German private spending weakens…India GDP growth slows to 10-year low

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Financial MarketsGerman bonds and U.S. Treasuries extended their gains on Friday as discouraging economic data from both countries boosted demand for the safe-haven government debt. Treasury 10-year yields fell for a third day, trimming the biggest monthly rise since December 2010, as U.S. consumer spending declined last month by the most in nearly a year. Germany 10-year yield 5 bps to 1.47% as the retail sales in Europe’s largest economy unexpectedly dropped.

Rosneft, Russia’s largest oil company, elected for local debt financing amid rising borrowing costs on hard-currency bonds. The company is issuing 40 billion rubles ($1.3 billion) of bonds redeemable in 5 years at an average yield of 8% to 8.16% next week. Yields on the country’s dollar bonds maturing in March 2022 climbed 60 basis points in May.

The yield on Vietnam’s benchmark government bonds slid to the lowest level since 2007 amid speculation the country’s central bank will cut interest rates as inflation slows. The five-year bond yield fell 43 basis points this week to 7.78%, which was the most drop since late March and the lowest level since August 2007.

High-income EconomiesConsumer prices in Japan continued to fall for a sixth month in April, posing challenge to Japan’s efforts to reverse 15 years of deflation. The core CPI index, excluding fresh food, fell 0.4% (y/y) following a 0.5% drop in March. The Bank of Japan aims to achieve 2% target in two years. Separately, industrial output gained momentum, growing at an annualized rate of 11.6% (3m/3m saar) in April, up from 9.1% in March.

German retail sales fell for the third consecutive month, dropping by 0.4% (m/m sa) in April due to unusually cold weather. Over the three months to April, growth weakened to 1.5% (3m/3m saar) from 6% in March.

US consumer spending is showing signs of softening: personal spending decreased in April, by 0.2% (m/m sa) following a 0.1% gain in March and 0.8% increase in February, suggesting that the support to growth in Q2 from private consumption will likely weaken. Disposable personal income also fell, by 0.1% in April after a 0.2% gain in March, in part reflecting a sharply slower pace of growth in wages and salaries.

Developing Economies…Europe and Central Asia: Turkey’s trade deficit widened sharply to $10.3 billion in April, representing a 55% (y/y) increase. Exports fell 0.9% (y/y) in April to $12.5 billion, while imports surged 18% to $22.8 billion.

South Asia: India’s GDP grew 4.8% (y/y) in 2013Q1, up slightly from 4.7% (y/y) in the previous quarter. For the entire fiscal year 2012-2013 ending in March, GDP grew 5%, down from 6.2% in the previous year. Additionally, this was the slowest growth in a decade.

Sub-Saharan Africa: Zambia's inflation rate accelerated to 7.0% (y/y) in May, up from 6.5% (y/y) in the previous month. The rise in Zambia's inflation comes on the back of a 21.5% increase in petrol and diesel prices. Food price pressures could also emerge down the line, following the scrapping of maize subsidies during May.