Top Movers

Bonds round-up: US yields continue to rise

Date: Tuesday 22 Dec 2009

Bonds round-up: US yields continue to rise

The spread between two-year and ten-year US Treasury bond yields continues to widen.

Bond prices are falling and two-year yields are nearly three basis points higher at 0.88%, while ten-year yields are six basis points higher at 3.73%. The difference between the two yields is a new record.

Shares continue to move higher despite disappointing GDP growth figures in the US. The US economy grew by 2.2% in the third quarter, according to the Commerce Department, revised down from the previous estimate of 2.8%. It’s also way below the 3.5% originally reported in October.

Sales of existing homes jumped 7.4% in November to an annual rate of 6.54m units, reports the National Association of Realtors, as first-time buyers rushed to take advantage of tax credit. That’s the fastest pace since February 2007 and trumped economists’ predictions of an increase to 6.25m from 6.1m in October.

UK gilts are also falling in price but the decline is more uniform than in the States. Two-year and ten-year yields are both three basis points ahead at 1.23% and 3.89% respectively.

UK GDP figures were as disappointing as those in the US. Gross domestic product fell 0.2% in the third quarter, a revision of the previous estimate of a 0.3% fall. The slight improvement in the figures was due to a better than anticipated performance by the construction industry, though this was offset by downward revisions to production and services.

Welcome though the upwards revision is, it will disappoint economists who had been predicting a 0.1% fall or even the outside possibility of zero change.

The year on year decline remained unchanged at 5.1%.

The Royal Institution of Chartered Surveyors predicts that house prices will rise by up to 2% in 2010.

German bunds prices are declining faster than gilts at the longer-dated end. Two year yields are two basis points higher at 1.19%, while ten-year yields are nearly seven basis points ahead at 3.26%.

Moody’s has cut its credit rating on Greece by one notch to A2 from A1, although traders were relieved that it wasn’t any more severe. Today’s downgrade means Greece’s rating is five notches above non-investment grade and two better than that at rivals Standard & Poor's and Fitch.

If all three agencies dropped their ratings to less than A, Greece’s bonds would not be acceptable as ECB collateral from 2011, posing further problems for funding costs and the banking system.

« Go back to news channel

Email this article to a friend

or share it with one of these popular networks:


Top of Page