In an interview with Spanish newspaper El Mundo, Bank of Spain Governor José Manuel González-Páramo said that monetary policy is still having an impact on the economy, and that the risk of deflation in the euro zone is not high. He also said the European Central Bank has the room to deliver a "very moderate" rate cut.

Annual March euro zone inflation was confirmed at record low rate of +0.6% on Thursday. In February, headline CPI was +1.2%. Meanwhile core CPI fell to +1.5% from +1.7% previously.

Annual February euro zone industrial production declined 18.4%, its most pronounced decline since at least 1986, according to a report from Eurostat. Economists expected a 18.0% fall. In January, there was a 1.0% slide.

Across the Channel, an article in the Western Mail on Thursday cited Bank of England designate David Miles as saying that the worst of the UK recession may have passed. He also said that there were some early signals that the BOE's quantitative easing polices were working.

In Germany, returns on two-year German bonds are up 5.4 bps to 1.39%, with five-year yields up 6.7 bps to 2.37%, 10-year yields up 5.4 bps to 3.20% and 30-year yields up 3.7 bps to 4.05%. The Euribor September 09 contract is down 2.0 ticks to 98.71.

Yields on UK two-year bonds are up 2.4 bps to 1.39%, with five-year yields up 4.2 bps to 2.50%, 10-year yields up 3.4 bps to 3.29% and 30-year yields up 2.7 bps to 4.41%. The Short Sterling September 09 contract is down 3.0 ticks to 98.59.

By Erik Kevin Franco, This email address is being protected from spam bots, you need Javascript enabled to view it ; edited by Nick Say, This email address is being protected from spam bots, you need Javascript enabled to view it

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