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Bonds round-up: Inflation fears subdue bonds

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Date: Tuesday 10 Jun 2008

LONDON (ShareCast) - US treasuries retreated again today in the wake of comments yesterday evening by Federal Reserve chairman Ben Bernanke that prospects of a significant downturn in US economioc growth have receded.

The difference in the yield between two-year notes and 10-year notes narrowed as the consensus on the Fed’s interest rate policy swung to the view that the next change is more likely to be up than down.

The yield on the 10-year note rose 5 basis points to 4.05% while the two-year note’s yield rose 10 ticks to 2.82%.

Sentiment was further undermined by the Bank of Canada’s unexpected decision to leave its benchmark interest rate as it joined the throng of central banks voicing concern over inflation fears.

European government bonds also fell back, with inflation fears again cited as the prime motivation for sales. The yield on the benchmark 10-year bund climbed 2 basis points to 4.51%.

In the UK, however, gilts edged higher after yesterday’s sharp decline which was prompted by gloomy producer prices data.

The UK Debt Management Office’s auction of £1.1bn of 1.875% index-linked Treasury gilts dated 2022 was subscribed 1.58 times today.

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