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Bonds round-up: Poor home sales boost bond demand

Date: Wednesday 23 Dec 2009

Bonds round-up: Poor home sales boost bond demand

US Treasury bond yields are heading lower and the difference between the two-year and ten-year yields continues to widen.

Two-year yields are two basis points lower at 0.89% and ten-year yields are four basis points down at 3.71%.

The rise in bond prices appears to have been triggered by the seasonally adjusted rate of new home sales plunging 11.3% to 355,000 in November from the month before, the biggest drop since April.

October’s figure was revised down to 400,000 from 430,000. Economists had expected sales to have risen by 1.9% to 438,000, and hopes were high following yesterday’s report from the National Association of Realtors that sales of existing homes jumped 7.4% in November to an annual rate of 6.54m units.

That was the fastest pace since February 2007 and trumped predictions of an increase to 6.25m from 6.1m in October.

Personal income increased by 0.4% in November, just short of the 0.5% predicted, while personal spending was up 0.5%, less than the 0.7% forecast by economists.

Economic sentiment does appear to be improving, though. The Reuters/University of Michigan consumer sentiment survey rose to 72.5, the best number since September, from 67.4 in November.

UK gilts are going the opposite way to US bonds. Sharp falls are increasing yields. Two-year yields are eight basis points higher at 1.32% and ten-year yields are nine basis points ahead at 3.99%.

There are worries that a rise in saving will hamper any UK economic recovery.

Data from the British Bankers Association showed that while net mortgage lending was £3.3bn in November, slightly up on the previous month, consumer credit fell by £0.3bn and personal deposits rose by £1.4bn.

The figures echoed data from the government showing the average household saved almost £300 a month in the three months to September as mortgage repayments tumbled in line with lower interest rates.

German bunds are heading the same way as UK gilts but the movement is not quite as sharp. However, the spread is widening like in the US. Two-year yields are one basis point higher at 1.19% and ten-year yields are six basis points higher at 3.33%.

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