Investors buy Bunds as Japan’s recession stokes fears over global economy

by Reuters 0

This has stoked investor concerns about the global economy.

The world’s third-largest economy contracted at an annualised rate of 1.6 per cent in the period, way below the 2.1 per cent expansion forecast by economists in a Reuters poll.

The big miss prompted investors to sell equities and park money in safe-haven bonds such as US and German government paper.

“The Japan number underlines the weak outlook for global growth,” said Rabobank strategist Lyn Graham-Taylor.

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German 10-year yields opened down two bps at 0.77 pct, just above a record low of 0.716 pct, while US equivalents were also two bps lower at 2.30 pct.

Lower-rated euro zone bond yields such as those in Greece, Portugal, Spain and Italy were flat or a tad higher on the day.

Strategists said the fraught relationship between the West and Russia over Ukraine was also feeding investor nervousness.

Ties between the two sank to a new low at the G20 meeting in Australia on Sunday. Russian President Vladimir Putin left the summit early as US President Barack Obama accused Russia of invading Ukraine and Britain warned of a possible “frozen conflict” in Europe.

With little euro zone data due out on Monday, markets focused on a list of speeches from ECB policymakers which could throw up hints of more policy easing.

Executive board members Yves Mersch, Peter Praet and Benoit Coeure are all due to speak, while president Mario Draghi will give his quarterly testimony before the European Parliament.

“(They are all) likely to reiterate the message that broader-based asset purchases may be needed if downside risks to the economic outlook were to materialise,” said Commerzbank strategists on Monday.

(WATCH VIDEO: Analysis of the ECB’s Eurozone stress test)

The euro zone economy beat market expectations to expand 0.2 per cent in the third quarter, data on Friday showed, while preliminary factory activity data for November this week will help markets gauge conditions in the fourth quarter.

Belgium will sell five and 10-year bonds in its last auction of the year. Belgian 10-year yields were one bp lower at 1.06 per cent despite Fitch revising the outlook on its AA rating to negative from stable on Friday.