Bond yields slip despite inflation signals

<p>Kia ora,</p><p>Welcome to Thursday's Economy Watch where we follow the economic events and trends that affect New Zealand.</p><p>I'm David Chaston and this is the International edition from Interest.co.nz.</p><p>Today we lead with news the bond market is no longer sending 'recovery' signals, and that is despite the growing inflation rates.</p><p>But first, US <a href="https://www.mba.org/2021-press-releases/june/mortgage-applications-decrease-in-latest-mba-weekly-survey-x280704" target="_blank"><strong>mortgage applications fell</strong></a> again last week, embedding a trend. Higher house prices are said to be excluding more borrowers there.</p><p>The US Treasury had <a href="https://www.treasurydirect.gov/instit/annceresult/press/preanre/2021/R_20210609_2.pdf" target="_blank"><strong>another bond auction</strong></a> overnight, this time a smallish for their ten year Note. They offered US$41 bln and the Fed took US$3 bln. For the remaining US$38 bln they got offers of US$98 bln so it was very well supported. The median yield was only 1.44% pa however reflecting that heavy demand. The <a href="https://www.treasurydirect.gov/instit/annceresult/press/preanre/2021/R_20210412_4.pdf" target="_blank"><strong>previous equivalent auction</strong></a> a month ago resulted in a median yield of 1.62%, so this matches the market retreats in bond yields recently, probably as a reaction to the underwhelming non-farm payrolls report.</p><p>In Canada, their central bank kept all its <a href="https://www.bankofcanada.ca/2021/06/fad-press-release-2021-06-09/" target="_blank"><strong>policy setting on hold</strong></a>, even though Canada is getting weaker-than-expected economic growth and hotter-than-normal inflation at this time. Their vaccination outlook keeps them confident things will pan out as they expected.</p><p>China's <a href="http://www.stats.gov.cn/tjsj/zxfb/202106/t20210609_1818279.html" target="_blank"><strong>producer prices</strong></a> grew +9.0% in May from a year ago, the fastest rate of increase in 13 years