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Bonds round up: Mixed day for gilts

Date: Wednesday 20 Jan 2010

Bonds round up: Mixed day for gilts

UK gilts had a mixed day after the Bank of England governor warned that economic recovery would be slow and there was mixed news on unemployment.

Two year gilts fell in price and the yield rose by three basis points to 1.34%. In contrast, 10-year gilts rose in price and the yield fell nearly two basis points to 4.01%.

Bank of England governor Mervyn King has issued another stark warning that the country faces a long and painful recovery from recession, while telling the government it had to make cuts to reduce the UK debt burden or face a market backlash.

Speaking at the University of Exeter, the Governor added that more international co-operation was need to avoid future crises and that the monetary and fiscal stimulus instigated by governments and central banks represented little more than a "massive sticking plaster on the wounds".

In December the number of people claiming jobless benefit fell more than expected, but the inactivity rate rose to its highest level since August 2007.

UK unemployment - on a claimant count basis - dipped by 15,200 in December following November’s revised fall of 10,800. Forecasts for December’s figure had ranged from a rise of around 8,000 to a fall of just 2,500, so the figures were better than expected for the second month in succession.

However, the inactivity rate, which measures the number of people eligible for employment who are unemployed and not looking for work rose to 21.2% in the three months to November.

US Treasury bonds are rising as figures from some of the top US banks show improved profit performance and economic news is mixed with housing starts falling more than expected.

Housing starts fell 4% to a 557,000 unit annual rate in December. Economists only expected a drop to 572,000.

Elsewhere, building permits beat forecasts, rising to a 653,000 unit annual rate last month from 589,000 in November.

The Producer Price Index increased 0.2% in December after climbing 1.8% in the previous month.

Two-year yields fell just over two basis points to 0.86% and ten-year yields declined five basis points to 3.64%.

German bunds rose after the announcement of a larger than expected decline in German consumer prices. The two-year yield fell five basis points to 1.13%, while ten-year yields were also five basis points lower at 3.23%.

German consumer prices fell 5.2% year-on-year in December, more than the 5.1% drop analysts had been expecting.

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