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Bonds round-up: Rally as equities crash on growth worries

Date: Thursday 04 Feb 2010

Bonds rallied as shares took a pasting on concerns over sovereign debt and the strength of global recovery.

German government bonds rose after the European Central Bank kept its benchmark interest rate at 1% and investors sought security on fears that Portugal could follow Greece into fiscal meltdown. Giant Spanish bank Santander added to concerns over the health of Europe by announcing a 44% jump in its bad debt provisions.

Ten-year benchmark bund yields tumbled 5 basis points to 3.17%. Sentiment was not helped by cautious comments from ECB president Jean-Claude Trichet over prospects for the Eurozone.

Unemployment in the region will increase, growth will be “moderate” and inflation will be “subdued,” he said.

He also added he is confident Greece can cut its budget deficit. “We expect and we are confident that the Greek government will take all the decisions that will permit them to cut its deficit to 3%", Trichet said at a press conference in Frankfurt.

Gilts, in contrast, were relatively subdued after the Bank of England announced no change either to UK interest rates or the £200bn quantitative easing programme. Ten-year benchmark gilt yields dropped by 2 basis points to 3.89%.

In the US, investors took refuge in debt after a pasting for equities in early dealings. Initial jobless claims soared to 480,000 in the week ended 30 January, some 25,000 higher than expected. The figure augurs badly for the monthly jobs total, which is expected to show a net gain of 15,000 and an unemployment rate of 10%.

Commodities prices tumbled with the figures, with the price of crude down over $3.50 per barrel and gold off $44 at $1,068. Benchmark ten-year note yields tumbled by nearly 10 basis points to 3.61% as investors scrambled for safety.

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