(WebFG News) – These were the movements in some of the most closely-followed 10-year sovereign bond yields:
US: 2.99% (+2bp)
UK: 1.54% (+0bp)
Germany: 0.63% (-1bp)
France: 0.85% (-0bp)
Spain: 1.30% (-1bp)
Italy: 1.77% (-3bp)
Portugal: 1.68% (-2bp)
Greece: 3.99% (-5bp)
Japan: 0.06% (-1bp)
Gilts ended the session unchanged, with news of the first public sector current budget surplus in 16 years helping Gilts resist the downward drag from selling in Treasury markets on the other side of the Pond.
According to ONS, the UK public sector's net borrowing requirement, excluding banks, was £1.3bn in March (consensus: £3.0bn) after a downwardly revised £1.2bn for February.
That saw the requirement for the fiscal year just ended drop to £42.6bn or 2.1% of GDP, which was below the OBR's projection for a shortfall of £45.2bn.
Excluding investment, then the “current” budget for the 2018-18 fiscal year was in a surplus of £112m – its first since 2001-02.
Yet the reduction in the red ink at Westminster was not a sign of economic vitality, but rather of falling interest payments and less borrowing by local authorities, said Samuel Tombs at Pantheon Macroeconomics.
Furthermore, Tombs said, the Chancellor was more likely than not to use up the resulting fiscal headroom to boost public sector pay and NHS spending in the Autumn budget.
On the plus side nonetheless, Tombs believed that “some relaxation of the fiscal plans next year, however, should help the economy to regain some of the momentum it has lost over the last year.”
In other data released on Tuesday, a survey from Citi and YouGov showed expectations for inflation five to 10 year ahead edging up from 3.0% for March to 3.1% in April, while for the year ahead they were steady at 2.4%.
Those figures prompted analysts at Citi to say: “With both short and long-term inflation expectations near their averages, we think neither urgent policy tightening nor a reversal of the nascent rate hike cycle are required.”
Acting as a backdrop, a barrage of better-than-expected readings on US house prices, new home sales and consumer confidence all contrived to lift longer-term US Treasury note yields higher, although Pantheon Macroeconomics did note that the 60 basis point jump seen in US mortgage rates since September was beginning to bite and would soon make itself felt in futures reports on home sales.