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Bonds round-up: Gilt prices slide

Date: Monday 01 Mar 2010

Bonds round-up: Gilt prices slide

UK gilts are on the slide as sterling has hit a nine and a half month low against the dollar.

There are fears that an indecisive general election result will hamper measures to cut the UK’s budget deficit. A weak government following this year’s election, which must take place before June 3, may be reluctant to take any measures to deal with the fiscal deficit.

There are also worries about the possible cash outflow relating to the potential acquisition of AIG’s Asian operations by Prudential.

Two-year gilt yields are seven basis points higher at 1.02%, while ten-year yields are five basis points higher at 4.09%.

There was positive news about UK manufacturing. The CIPS/Markit purchasing managers’ index stuck at 56.6 last month, the same as in January and the best number since October 1994. That easily beat forecasts for a dip to 56.4. A read of over 50 indicates growth.

Eurozone manufacturing activity increased for the fifth month in a row in February, with the index rising to 54.2 from 54.1.

German bunds are mixed amid hopes that Greece can be helped financially. Two-year bunds are rising in price and yields are one basis point lower at 0.94%. Ten-year bunds are falling in price with a one basis point increase in yield to 3.11%.

BNP Paribas forecasts that 12-month US Treasury bills will fall, while JP Morgan is bearish about two-year Treasuries.

However, US bonds were barely changed with two-year yields down nearly one basis point to 0.8% but 10-year yields less than one basis point higher at 3.62%.

Personal income rose just 0.1% in January, less than the 0.5% increase predicted by analysts, while personal spending rose 0.5% versus expectations of a 0.3% advance.

The ISM manufacturing index fell more than expected, down to 56.5 in February from 58.4 the month before and worse than the 57.8 predicted, although a read of over 50 still indicates expansion.

Meanwhile, construction spending dropped 0.6% in January in line with expectations.

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