Bonds: Apple bites bond market

Date: Wednesday 25 Apr 2012

These were the yields and movements on some of the most watched 10 year bonds just before the close in Europe:

Spain: 5.81% (-6bp)
Italy: 5.64% (-3bp)
France: 2.99% (-4bp)
Germany: 1.75% (+5bp)
UK: 2.14% (+4bp)
US: 2.00% (+2bp)

The bond market was driven by a lacklustre German auction and some strong equities news out of the US which gave traders the confidence to move to a slightly stronger “risk on” posture.

The German government sold €2.75bn in bonds with a 32 year maturity at a record low interest rate of 2.41%. The country had targeted a sale of €3bn, so the auction came in short. This suggests investors believe German yields are now so unattractive other nations’ securities represent better value.

Certainly, the 10 year yield on Spanish, Italian and French bonds all dropped, despite ongoing fears they will struggle to raise money while running sizable budget deficits.

The slight wildcard in the newsflow was the near doubling of Apple’s first quarter profits in 2012 from the same period of 2011. Sales of the iPhone in China have been the main driver but the news clearly gave markets a jolt. The thinking goes: “If they can sell that many iPhones, things can’t be that bad. Let’s buy something”.

You may think this is somewhat warped, irrational and reactive. We couldn’t possibly comment.

BS

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