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Prospects Daily: Euro Area bond yields drop, Japanese economic sentiment improves, Turkey’s industrial output accelerates

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Financial MarketsJapanese equities rallied on Monday, with the Nikkei 225 Stock Average gaining 2.8% to close at 41/2 year highs, after the yen fell against the dollar to its lowest level since June 2009, boosting share prices of the county’s exporters. The Nikkei surged 52% from mid-November through April 8 as the Japanese government vowed to reverse 15 years of deflation.

Spanish government bonds advanced today, pushing 2-year yields below 2% for the first time since October 2010, as the ECB’s hints on Friday that a rate cut may be on the cards boosted demand for the region’s higher-yielding debt securities. Italy 2-year bond yields fell 4 basis points to 1.46%, the lowest level in two months. Meanwhile, 10-year yields on French and Austrian government debt fell to record lows of 1.709% and 1.46%, respectively.

The Indonesian government is selling 10-and 30-year global bonds today, its first international debt sale this year, in order to take advantage of near record borrowing costs. The average dollar bond yield for Asian borrowers is at 3.52%, near October‘s historic low of 3.35%. The country is reportedly offering dollar-denominated bonds due in 2023 and 2043 with yields of about 3.55% and 4.80%.

High-income EconomiesGermany’s industrial production decline appears to have bottomed out. Output fell by 0.76% (3m/3m saar) in February, following a 5.5% drop in January and 9.1% in December. Although growth over the quarter appears unlikely given the small gains in output so far, the improvement suggests that manufacturing will act as a smaller drag on the economy than it did in Q4 last year when the economy contracted at a 2.3% (q/q) annualized pace.

In Japan, the Economy Watchers’ Survey conducted in late March indicated a marked improvement in the economic climate. The headline current conditions index posted a fifth monthly gain to 57.3, the highest since March 2006, on rising consumer spending and new orders and profits at businesses. Separately Japan posted its first current account surplus in four months in February, reflecting narrower trade deficits and robust income receipts from investments overseas.

Russia,
which rejected a bid from Cyprus for additional financial assistance last month, has agreed to restructure a 2.5 billion-euro ($3.3 billion) loan granted to Cyprus in 2011, bowing to a request by the European Commission. Restructuring terms sought by Cyprus would amount to a 10 percent write-down of the loan.

Developing EconomiesEurope and Central Asia: Turkey’s industrial production accelerated in February to 4.4% (y/y), up from 2% in January which is the fastest pace since May 2012.  Acceleration was driven by increases in manufacturing and production of electricity.

Bulgaria's industrial production grew at a slower pace in February, increasing 5.1% (y/y), down from 8.3% increase in January led by growth in manufacturing and electricity production while offset by declines in mining.

Latin America and the Caribbean: Chile’s inflation is up slightly in March to 1.5% (y/y), from 1.3% in February, however, inflation remains below the central bank’s target band of 2-4%.

Similarly, Colombia’s inflation went up to 1.9% (y/y) in March from 1.8% in February with inflation still below the central bank’s target band of 2-4%.

Sub-Saharan Africa: Tanzania’s inflation maintained its downward trend in February to 9.8% (y/y), down from 10.4% in January, helped by a slowdown in the rise of food prices. The inflation has fallen into single digits for the first time since May 2011. The central bank’s target is to get it into single digits by the end of fiscal year ending June 2013.

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