Bonds round up: Manufacturing boosts bonds

Date: Monday 04 Jan 2010

US Treasury bonds are rising on the back of positive manufacturing data.

The Institute for Supply Management’s factory index rose from 53.6 in November to 55.9 in December - the highest level in more than three years.

US Treasury bond prices are moving ahead except at the longest-dated end of the market. Two-year yields fell five basis points to 1.09% while ten-year yields declined two basis points to 3.82%.

Pacific Investment Management Company says that it is cutting its holdings of US and UK debt. The firm is worried about spiralling government debt.

UK gilts are also edging upwards with two-year yields down one basis point to 1.31% and ten-year yields nearly six basis points lower at 3.96%.

There was positive news about the UK economy. UK manufacturing activity was a lot healthier than expected in December, with the CIPS-Markit Manufacturing Purchasing Managers Index hitting a 25-month high of 54.1.

That represented a sharp improvement on November’s level of 51.8, and confounded economists’ expectations of a decline to around 51.5. New orders from the UK rose strongly.

Mortgage approvals in November rose to 60,518 from a revised 57,718 in October. Analysts had pencilled in a figure of 58,000 for November.

German bunds were mixed with shorter-dated bunds falling in price but many longer-dated bunds rising. Two-year yields rose two basis points to 1.35%. Ten-year bunds were the only longer-dated instruments that were slightly lower but the ten-year yield was virtually unchanged at 3.39%.

Manufacturing activity across the euro zone expanded for the third month running in December, matching a preliminary estimate released last month.

The 16 country zone’s purchasing managers' index (PMI) rose to 51.6 points in December from 51.2 points in November, according to research group Markit. However, the survey indicated that the overall rate of improvement in manufacturing activity slowed for a second successive month.

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