Real yields and inflation expectations currently suggest exceptionally low growth and low inflation far out into the future.
We expect that profit margins will expand further in coming quarters, driven by a large corporate tax cut and continued industry rationalizations that further prove that Japan's structural profitability trend continues upward.
We do not expect the recent steepening of the bund yield curve to be the beginning of a sustained new trend. Moreover, Eurozone and German economic data, albeit improving, are not sufficient to support the higher bund yields on a sustained basis.
US Treasury (UST) yields rose in April, as hopes of stabilization in the Chinese economy underpinned demand for riskier assets.
Since the Fed starting hinting at the normalization of interest rates a year ago, Asian central banks' foreign reserve accumulations - except for India and Hong Kong - have either incurred substantial losses or remained flat.
With many markets having rallied from major support levels when they were in highly oversold positions, we believe that bond markets should stabilise or rally from current levels.
Yields of the US Treasuries (USTs) traded in a relatively tight range, eventually ending higher at month-end. At 2.03%, the 10-year point on the UST curve was up 11 basis points (bps) compared to the level at end-March.
The MSCI AC Asia ex-Japan returned 7.2% in April after shrugging off initial weakness and outperformed the MSCI AC World by 2.3% in April in USD terms.
The Japanese stock market has continued to rise, punctuated by the Nikkei 225 recently closing above 20,000 points for the first time in 15 years.
We expect that Japanese pension funds will continue to shift their investments into risky assets in 2015.