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Prospects Daily: U.S. Treasuries rise after lower-than-expected March jobs gain, U.S. jobless rate steady at 6.7% while Canada’s falls to 6.9%, Fitch maintains China’s sovereign rating at ‘A+’

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Financial Markets… U.S. treasuries advanced on Friday after fewer-than-expected jobs gain for March eased worries over earlier-than-anticipated hike in policy rate by the Federal Reserve. The rally was led by the 5-year Treasury note with its yield sliding 7 basis points (bps) to1.73%, compared to a 2 basis point gain in the 30-year Treasury yield to 3.61%. The benchmark 10-year yield dropped 4 bps to 1.73%. This development reflects that short-term and medium-term Treasury securities are regarded as most vulnerable to a rise in interest rates.
 
Yields on Spanish 5-year government bonds fell below those of the U.S. equivalents today for the first time since mid-2007, highlighting the strong rally in euro-zone high-yielding bonds. Spain’s 5-year borrowing costs reached a historic low of 1.71%, which was lower than the 1.73% on comparable U.S. borrowing costs. Government bond yields from Ireland to Italy dipped to record lows amid growing hopes that the European Central Bank will provide further monetary stimulus.
 
High Income Economies…U.S. non-farm payroll employment rose by 192,000 jobs in March.  The slightly less-than-expected increase follows employment gains in January and February of 144,000 jobs and 197,000 jobs, respectively, reflecting a net upward revision of 37,000.  Despite the continued job growth, the unemployment rate unexpectedly held unchanged at 6.7% in March.
 
The Canadian jobless rate fell to 6.9% in March from 7.0% in February and 7.2% in March 2013.  Employment increased by 42,900, driven by gains among youths, compared with a loss of 7,000 jobs in February.  The much larger than expected increase was driven by employment gains in health care and social assistance, and in business, building and other support services, while employment fell in agriculture.  Public sector employment increased in March while the number of private sector employees and self-employed was unchanged.
 
Suggesting a further revival of industrial production in the coming months, German factory new orders advanced 0.6% (m/m) in February after January’s sharply downward revised gain of 0.1%.  Domestic orders climbed 1.2%, while foreign orders grew only 0.2%.  New orders from the Euro Area rose 5.9%, while new orders from other countries declined 3.1%.  In contrast to the upbeat factory order news, the Purchasing Managers' survey yesterday revealed a slowdown in the Germany's private sector. The composite output index fell to 54.3 in March, a five-month low, from 56.4 in February.
 
Developing Economies…East Asia and Pacific:  Malaysia’s exports rose by a higher-than-expected 12.3% (y/y) in February, following a 12.2% (y/y) increase in January, driven by shipments of manufactured goods. Meanwhile imports rose 9.5% (y/y),  a slower pace than expected, but higher than January’s 7.2% (y/y) increase.  Reflecting these developments, the trade surplus rose 27.2% to MYR10.4bn, exceeding market expectations.
 
Philippines’ annual headline inflation, measured by the consumer price index, eased for the consecutive month to 3.9% in March, a four-month low, down from 4.1% (y/y) in February, due to lower prices of alcoholic beverages and tobacco, housing, water, electricity, gas and others fuels; while prices of food and non-alcoholic beverages rose further.  Despite the slowdown, inflation remained above the central bank’s target of 2-2.8% for 2014.
 
Fitch Ratings maintained China’s sovereign rating at ‘A+’ and ‘stable’ outlook, on account of strong external balance sheet, and less volatile economic growth. The sovereign external balance sheet remained China’s core sovereign credit strength, with foreign reserves estimated at US$3.82 trillion at end-2013, representing 19.2 months of current external payments.
 

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