Benchmark government bond yields in the US and Germany dropped yesterday after sources told Reuters a European Central Bank rate cut next month is “more or less a done deal,” while US stocks retreated slightly from recent record highs.

Eurozone sources said the ECB plans a package of policy options, including measures aimed at boosting lending to small- and mid-sized firms.

The ECB’s dovishness has helped hold down yields on German and US debt, though the expectation is that stronger US growth will result in a boost to those yields over time.

Ten-year Bund yields hit a one-year low of 1.37 per cent while the 10-year Treasury note’s yield fell to 2.53 per cent, the lowest since October. UK yields also fell after the Bank of England said it was in no hurry to raise rates.

“It reinforces the notion that from a global perspective monetary policy is committed to lower (rates) for longer,” said Ian Lyngen, a senior government bond strategist at CRT Capital in Stamford, Connecticut.

Bonds rallied even as US wholesale prices increased 0.6 per cent in April, the most in 1-1/2 years, in a sign inflation pressures may be creeping up.

The S&P 500 edged lower after setting its most recent record closing high. Defensive sectors such as utilities and telecoms were the best performers.

Oil continued its climb on fighting in Ukraine. US crude oil rose 81 cents to $102.52 a barrel, while Brent crude gained $1 to $110.24.

Sterling fell to a one-month low against the dollar after the BoE said it was in no rush to raise rates and that Britain’s economic recovery is still in its early stages.

Utilities and telecoms were the best performers

Sterling backed off a 16-month high against the euro. The euro was up 0.4 per cent against sterling at 81.70 pence. Sterling was down 0.2 per cent against the dollar at $1.6784 while UK gilt yields fell to as low as 2.58 per cent. MSCI’s all-country world index edged up 0.1 per cent at 418.01 after reaching 418.24, its highest since November 2007.

The Dow Jones industrial average fell 56.58 points or 0.34 per cent, to 16,658.86, the S&P 500 lost 3.19 points or 0.17 per cent, to 1,894.26 and the Nasdaq Composite dropped 7.56 points or 0.18 per cent, to 4,122.60.

The FTSEurofirst 300 index of leading European shares closed virtually flat, down 0.37 point at 13689.38 points, close to Tuesday’s six-year high.

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