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Bonds round up: GDP figures trigger rise in gilts

Date: Tuesday 26 Jan 2010

Bonds round up: GDP figures trigger rise in gilts

UK gilts rose after disappointing GDP figures.

UK GDP increased by 0.1% in the fourth quarter of 2009 from the previous three months, much less than the 0.4% predicted. The year on year number revealed a 3.2% decline, more than the 3% fall the market had expected.

Two-year gilt yields fell by three basis points to 1.2% and ten-year yields declined by more than three basis points to 3.87%.

Mortgage lending strengthened in December as home buyers sought to enter the market ahead of the end of stamp duty relief, figures from the British Bankers’ Association (BBA) showed today.

Gross mortgage lending rose to £10.2bn from £9.6bn in November with people seeking to buy new houses ahead of the reintroduction of stamp duty for homes worth £125,000 to £175,000 at the beginning of 2010 following a temporary break.

US Treasury bonds edged up slightly during the day. Two-year yields slipped by less than one basis point to 0.8%, while the ten-year yield was two basis points lower.

Bonds were boosted by President Obama’s call for a three-year freeze on some domestic spending programmes. They were also pleased that some Chinese banks are suspending new lending.

The US consumer confidence index for January hit a 16-month high of 55.9, up from an upwards revised 53.6 in December. Economists had pencilled in a value of 53.5 for January.

Most German bunds were also on the rise, except at the shorter-dated end. Two-year yields rose by one basis point. However, ten-year yields fell by nearly two basis points to 3.2%.

German business confidence has improved further in January, according to a closely watched survey, indicating that Europe's biggest economy continues to recover steadily.

The Ifo Institute’s business sentiment index rose to 95.8 in January, from 94.7 in December and ahead of forecasts of a 95.1 increase.

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