Bonds round-up: Sharp decline for US Treasuries

Date: Monday 21 Dec 2009

A strong rise in shares has led to a decline in US Treasury bonds. Investors appear to be more interested in riskier assets.

Two-year yields are five basis points higher at 0.84% but ten-year yields are rising even more sharply and have added 10 basis points to 3.64%. This is the widest spread between two- and ten-year yields on record.

The US economic recovery is expected to accelerate and fuel an increase in inflation. There are also worries that demand for US debt will diminish. There is talk that 10-year yields could rise above 4% during 2010.

UK gilts are also falling in price but the decline is more uniform across the various maturities. Two-year gilt yields rose 10 basis points to 1.22%, while ten –year yields rose a touch more to 3.87%.

The CBI predicts that the UK economy will recover slowly in 2010 but growth could pick up in 2011.

German bunds are acting more like the US Treasuries with price falls steepening at the longer end. Two-year yields are two basis points higher at 1.175, while ten-year yields are six basis points ahead at 3.19%.

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