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Daily Agenda: Bond Markets Brace for the Fed

Greece prepares for a looming debt payment; Bank of Japan leaves rates unchanged; Oracle to report earnings.

As the Federal Reserve announcement looms, markets for Treasuries remain in a holding pattern despite expectations for tightening to commence in the coming month. The yield for ten-year notes is 15 basis points lower than the high of the year, following last month’s stellar employment report. On a historical basis, however, U.S. government debt remains rich compared to German government debt markets: ten-year Bunds dipped below 0.2 percent last week. As investors continue to focus on a flight to U.S. dollar safety in response to easing abroad, Treasuries appear attractive, particularly given the selling pressure in gold and other so-called hard assets in recent weeks. With consensus forecasts calling for the Federal Open Market Committee to exclude the term “patience” in its report tomorrow, it appears that U.S. debt markets are poised for an orderly withdrawal, rather than a rout.

Greek debt deadline looms. More than $2 billion in debt payments are due Friday, necessitating emergency plans for funding to be presented before Greece’s parliament today. Prime Minister Alexis Tsipras’ administration remains defiant in the face of demands by the Eurogroup, the European Central Bank and the International Monetary Fund for fiscal reforms to entitlement programs.

German sentiment rises. The ZEW Centre for Economic Research today released economic sentiment index data that came in at 54.8 in March, up from last month’s reading of 53 — a sign that German business leaders are shaking off regional and geopolitical concerns. This is the fifth consecutive month of rising sentiment in the European Union’s largest economy.The headline euro zone economic sentiment index reached a 13-month high of 62.4 versus a prior reading of 52.7 and consensus forecasts for 58.2.

Bank of Japan leaves rates unchanged. As anticipated, Bank of Japan policymakers kept to the course today. In the report accompanying the rate announcement the bank projected a zero rate of inflation in the months ahead, with the possibility of deflation as fuel costs remain low and household spending weak. The report suggested long-term optimism, anticipating that corporate investment and rising wages would eventually drive inflation towards the bank’s target of 2 percent.

BHP to spin off unit. BHP Billiton yesterday announced a plan to divest a group of mining assets focused on nickel and aluminum production at a cost of over $700 million. Shareholders of the Melbourne–headquartered global mining giant will vote on the proposal in early May.

Deflation stalks euro zone. Second-release January consumer inflation data released today by Eurostat showed a 0.3 percent contraction for the month, a marginal improvement from initial estimates. As the combination of sluggish activity in many regional economies combined with low commodity and fuel costs weigh on prices, the ECB’s price target remains elusive.

Oracle to announce earnings. Tech stalwart Oracle will release fiscal third-quarter earnings after the close of New York equity markets close today. The company’s compensation system came into scrutiny last week after it was reported that CEO Larry Ellison’s compensation for fiscal-year 2014 will reach $103 million.

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