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Bonds: UK, US and German rates down; Italy, Spain rise

Date: Monday 21 Nov 2011

Bonds: UK, US and German rates down; Italy, Spain rise

The broad story on bond prices today has been a flight to the safety of US treasuries and away from the danger manifest in holding Spanish and Italian debt.

The yield on US government 10 year treasuries dropped 5 basis points to 1.95% as investors looked for somewhere - anywhere - safe to put their money. Bond yields move inversely to prices.

Strangely enough, the biggest concern in markets was actually the US itself. A so called “super committee” of US politicians seems unable to reach a deal on $1.2trn in cuts to the federal budget. This stasis at the top level of government means the US’s credit rating will come under more pressure following the August downgrade by Standard & Poor’s from AAA to AA+.

In Europe, the ongoing concern that several significant Eurozone countries might simply be unable to pay their debts drove borrowing costs higher.

Lenders to Spain are digesting the implications of the election yesterday of a new conservative government under Mariano Rajoy’s Spanish People’s Party. His commitment to implementing tough austerity measures doesn’t seem to have convinced the market. At 4.32PM Spanish 10 year bonds were yielding 6.55%, up nearly 17 basis points on the day.

In the other severely distressed euro area economy, Italy, 10 year bonds were at 6.66% up 23 basis points on the day.

Meanwhile, French 10 year debt was down 31 basis points at 3.46%. On a day with little good news, this will see European leaders breathe a very cautious sigh of relief.

For those of a patriotic bent, British debt still looks like a doughty fighter, holding its own on a battlefield where so many others have fallen. UK 10 year gilts were down 6.4 basis points at a comforting 2.19%.

Germany, however, is currently the purveyor of, apparently, the safest debt in Europe. On each euro it borrows it is currently only paying 1.9%, the yield having fallen 6.5 basis points on the day. As readers of this column will appreciate, however, the strength of US and American notes implies investors are too spooked to put money elsewhere.

BS

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