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Prospects Daily: U.S. short-term yield rises to highest since 2011, Eurozone leading index rises marginally in February, Nigeria leaves interest rate unchanged at 12%

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Financial Markets…The U.S. Treasury auctioned $32 billion of two-year securities yesterday at the highest yield in nearly three years as investors speculated the pace of interest-rate hike by the Federal Reserve will pick up. The 2-year notes were sold at a yield of 0.469%, the highest level since May 2011 monthly auction that yielded 0.56%. The demand for the new notes were relatively weak with the auction’s bid-to-cover ratio of 3.2 (comparing total bids with the amount of securities offered), which was the lowest ratio since September. The Treasury will sell $35 billion 5-year notes and $13 billion in 2-year floating-rate note today, and it is expected to auction $29 billion of 7-year notes on Thursday.

Developing-country stocks advanced for a fourth day, gearing for the longest rally since October, as stronger-than-expected corporate earnings in China, diminishing concerns over Ukraine, and upbeat U.S. consumer confidence boosted investor sentiment. The benchmark MSCI Emerging Market Index rose 1% to the highest level since March 9. Notably, Russia’ Micex stock index jumped 1.9% to a one-week high, following Tuesday’s 2% advance, and India’s Sensex index gained climbed 0.2% to a new record high.

High Income Economies…U.S. new orders for manufactured durable goods surged 2.2% (m/m sa) in February following a revised 1.3% decline in January. The larger-than-expected rebound was largely due to the 6.9% jump in orders for transportation equipment, which had tumbled 6.2% in January, on top of the 12.1% plunge in December. Excluding transportation equipment, durable goods orders inched up 0.2% after rising by a revised 0.9% in January. On a three-monthly annualized basis, new orders for durable goods slumped 14.7% (3m/3m saar) in February after a 1.6% decline in January. Excluding transportation equipment, new orders fell 3.0% after inching down 0.5% in January.

Possibly indicating fading rebound effects from the recession, the Conference Board Euro Area leading index gained 0.1% (m/m) in February following January’s 1.4% increase. The small gain in the leading index in February, together with the slowdown in its six-month growth rate, points at the stabilization in economic conditions. The coincident economic index, which measures current economic activity, dropped 0.1% in February, in contrast to a 0.2% rise seen in January.

The Russian economy could shrink significantly in 2014 if the crisis caused by Russia's annexation of Ukraine's autonomous region of Crimea worsens, the World Bank highlighted in a report on Russia on Wednesday. Two alternative scenarios were presented and under a low-risk scenario of a limited and short-lived impact of the Crimea crisis, growth is projected to slow to 1.1% in 2014 but will pick up to 1.3% in 2015. The high-risk scenario assumes a more severe shock to economic and investment activities if the geopolitical situation worsens and projects a GDP contraction of 1.8% for 2014, but a rebound to 2.1% growth in 2015.

South Korean GDP expanded 3.0% (y/y) in 2013, which is higher than the 2.8% in January's advance estimate, and the 2.0% growth in 2012. The higher growth was mainly due a solid expansion in construction investment, intellectual property products investment and exports, amid continuous increase in private consumption, while the growth of facilities investment slumped.

Developing Economies…East Asia and Pacific: Thailand’s merchandise trade balance swung into a surplus in February owing to a rebound in export growth. Merchandise exports rose 2.4% (y/y) in February, after having contracted 1.9% (y/y) in January, helped by increased shipments of autos and auto parts, and electronic items. Meanwhile imports fell further in February decreasing 16.6% (y/y), following a 15.5% (y/y) decline in January. As result, the trade balance recorded a surplus of US$1.8bn, up from a deficit of US$2.5bn in January.

Sub-Saharan Africa: Nigeria’s central bank left the policy rate unchanged at 12%, but raised the cash reserve requirements for private sector deposits by 300 basis points to 15%. The Monetary Policy Committee stated that the continuation of tight monetary policy was needed to consolidate recent economic gains and in view of the recent resurgence of core inflation in spite of the downward trend in headline inflation.

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