Bonds higher across the markets

Date: Monday 11 Jan 2010

In the US, the yield spread between 2- and 10-year treasuries widened to a record high amid expectations interest rates will stay low in the first half of the year.

The yield spread between the two securities was as high as 289 basis points and now sits at 287 points with the yield on a 10-year note falling two basis points to 3.81% and the yield on a 2-year note down four basis points at 0.94%.

Expectations of low short term interest rates put most pressure on bonds due to mature sooner.

Here, gilts were sharply higher amid continued nervousness over the state of the economy.

Activity in the UK's financial services sector rose less than expected in the last quarter, according to the Confederation of British Industry (CBI) and accountancy firm PricewaterhouseCoopers (PwC).

Asked how their business volumes fared in the three months to December, 32% said that volumes rose, while 28% said they fell. The resulting balance of +4% is slightly lower than September’s +7%, and less than expected (+16%), according to CBI and PwC.

Meanwhile, the head of the UK retail trade body has warned that 2010 overall will be difficult for the sector despite bumper sales figures from some chains over Christmas.

BRC director general Stephen Robertson said retailers face a "very tough" 2010 with tax rises and continuing economic uncertainty likely to act as a brake on spending.

The yield on a 10-year gilt fell eight basis points to 3.98%.

Mainland European bonds were also in demand. The yield on a 10-year German bund yield fell four basis points to 3.35%.

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