LONDON - Government bond yields have tumbled on the basis that the world's major central banks will continue to keep monetary policy easy and in some cases loosen further.
Economic data in the week ahead - most notably May purchasing managers surveys (PMIs) from the United States, China and the euro zone - will be used by investors to test that thesis.
Five senior sources have told Reuters that the European Central Bank is preparing a package of policy options for its early June meeting, including cuts in all its interest rates and targeted measures aimed at boosting lending to small- and mid-sized firms.
A distinctly mixed bag of euro zone GDP data, which showed Germany charging ahead and Spain holding its own but France stagnating and Italy, Portugal and the Netherlands slipping back into contraction, will have done little to dissuade the ECB from moving.
"While speculation mounts in Europe as to the composition of a package of ECB measures in June, as the central bank seeks to fend off excessively low inflation, across the Atlantic, all eyes will be on the US FOMC minutes next week for hints about a policy exit," said Paul Mortimer-Lee, global head of market economics at BNP Paribas.
Minutes of the Federal Reserve's last policy meeting, at which it reduced its monthly bond purchases to $45 billion from $55 billion, will be released on Wednesday.
At the April 30 meeting the Fed stuck to its assessment that the economy would need near-zero interest rates for a considerable time after asset purchases are fully wound down by year-end. The US economy hardly grew in the first quarter but has gathered pace since.
There may have been discussion about a future exit strategy.
"The last FOMC meeting saw a closed-doors session on 'medium-term monetary policy issues'," Mortimer-Lee said. "Such sessions were held in 2011 and led to a discussion of exit strategies and later to a formal outline of the strategy."
The Bank of Japan delivers its latest policy decision on Wednesday and is set to maintain its upbeat view of the economy, suggesting no immediate expansion of stimulus is likely.
Talk of tighter policy is not even in the air and the BOJ is
expected to maintain its monetary policy framework, under which it increases base money by 60-70 trillion yen ($589-$688 billion) per year via aggressive asset purchases.
"The key concern for the BOJ is the weakness in exports and whether wages will increase enough for consumers to continue spending," said Yoshiki Shinke, chief economist at Dai-ichi Life Research Institute.
Recent data from China has shown weakness in output, investment and consumption, raising expectations that the People's Bank of China will come in with some form of stimulus if Beijing is to meet its 7.5 per cent growth target this year.
China's last reading showed its manufacturing sector shrank for a fourth successive month in April. The US and euro zone PMIs are forecast to hold steady in May, both well above the 50 mark that separates expansion from contraction.