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Government bonds and the dollar find support

Call it an eerie calm, but it’s all looking better for sovereign debt yields and the dollar.

After last week’s drama, the dollar and government bonds are finding their feet, with gold the asset under pressure, taking it back to levels last seen in mid-May.

The dollar index is bouncing higher after it’s 1.8 per cent fall last week took its decline for the first half of 2017 to over 6 per cent. It is up 0.2 per cent on Monday at 95.768. The euro is 0.1 per cent weaker at $1.1407, while the pound is down 0.2 per cent at $1.3002.

Sovereign debt yields are flat-to-lower in across Europe, while the US 10-year yield is up a single basis point at 2.3161 per cent.

Germany’s benchmark 10-year yield is down 1 basis point at 0.46 per cent. Spain’s is down 2 basis points at 1.509 per cent and France’s is flat at 0.8182.

Japan’s 10-year government bonds were are flat, yielding of 0.075 as is the 10-year US yield at 2.313 per cent, even after

China and Hong Kong on Monday launched a bond trading link that brings the world’s third-largest debt market one step closer to widespread acceptance in international investors’ portfolios.

The yen is 0.2 per cent weaker at ¥112.50 to the dollar, after a historic defeat by the party of Prime Minister Shinzo Abe in Tokyo elections over the weekend, interpreted by some as a no-vote on Abenomics, the policies of monetary easing, fiscal stimulus and structural reform.

European equities are rising with the Euro Stoxx 600 up 0.7 per cent, as is the Xetra Dax 30. London’s FTSE 100 is up 0.4 per cent. Technology and industrial stocks are setting the pace across the continent. Financials and resource stocks in demand in London, where gains are being offset by precious metal stocks and utilities.

Japan’s stocks are receiving support from a better than expected reading from the Bank of Japan’s Tankan survey of manufacturers. The Tpoix is up 0.2 per cent.

The Hang Seng is up 0.1 per cent in Hong Kong, as is the Shanghai Composite.

Oil prices are rising, building on Friday’s late-session rally.

Brent crude, the international benchmark, is up 0.3 per cent at $48.91 a barrel, having closed 2.4 per cent higher the previous session.

US marker West Texas Intermediate is up 0.4 per cent at $46.22 after a rise of 2.5 per cent on Friday.

Gold‘s low takes it to $1,235 an ounce, down 0.5 per cent on the day.

Jonathan Bayliss, head of macro rates investing for institutional clients within Goldman Sachs Asset Management, said:

While we appreciate that policymakers may use speeches and press conferences to shape expectations of future decisions, we believe recent comments are more balanced than headlines suggest.

[Last week’s] flurry of comments from central bankers drove yields on global government bond yields higher, [but] contrary to the hawkish market interpretation, we do not believe the path for monetary policy in key markets has shifted. We continue to expect the US Federal Reserve to take the lead in terms of rate hikes and balance sheet normalisation, while central banks in Europe and Japan scale back quantitative easing due to scarcity of assets but maintain low rates amid subdued inflation outlooks.