The reflation trade moves to a 2nd day helped out this time by the Chinese rate cut of 25 bps for both lending and deposit rates. It is the first time in years that Chinese officials have used this lever instead of reserve requirements. The BoE however kept rates and their current QE program unchanged. Ahead of Bernanke today, Fed Vice Chair Yellen last night said “scope remains for the FOMC to provide further policy accommodation.” Bernanke will likely echo the same at 10am showing Congress that he is on the case. As the benefits of central bank action (whether from the Fed soon, eventually from the ECB and BoJ and in response to PBOC) become shorter in both effect and time, we’ll see how long this phase lasts. Spain sold 2’s, 4’s and 10’s totaling 2.07b euros, a touch above their target amount and their 10 yr yield is falling to a 2 week low in response. Also helping bonds, the FT is reporting that “European officials are weighing up a bailout program for Spain…while imposing only ‘very limited conditionality’ on Madrid, a concession that could make a reluctant Spanish gov’t more willing to accept international assistance.” Elsewhere, Australia reported a May job gain of 38.9k jobs, where no change was expected. To compare to the US population size, it equates to a job gain of about 525k.
