Bonds round-up: Ten-year yields rise

LONDON (ShareCast) - The Bank of England is going to pump an additional £25bn into the UK economy over the next three months. Interest rates were held at 0.5%.

The news led to a rise in two-year gilts but longer dated gilts fell sharply. Ten-year gilt yields rose by seven basis points to 3.86%, while two-year yields dipped by one basis point to 0.89%.

Manufacturing production increased by 1.7% month-on-month, following a 2% decline in August, according to data published by the Office for National Statistics. Analysts were looking for a 1% rise.

Industrial production was up 1.6%, better than the 1.3% monthly rise forecast.

These figures represent a rebound from poor figures in August so it is difficult to assess whether the improvement is part of a longer-term trend. Car sales rose by an annual rate of 31.6% to 168,942 in October.

German bunds also fell during the day but much less sharply than gilts. Two-year bunds were broadly unchanged and yield 1.3%, while ten-year bund yields rose two basis points to 3.34%.

European Central Bank Governor Jean-Claude Trichet says that policy makers will withdraw liquidity measures as the European economy improves. However, he said that any exit will be gradual which buoyed two-year bunds.

The ECB refinancing rate was unchanged at 1%.

The difference between the yields of two- and ten-year US Treasuries is the widest since September following the Fed's decision to hold interest rates at 0.25%. Two-year yields fell two basis points to 0.87%, while ten-year yields were broadly unchanged at 3.53%. Investors appear to be worried about inflation risks. The US government intends to sell $81bn of bonds next week.

Initial jobless claims fell by 20,000 to 512,000 in the week ended 31 October, which was a bigger fall than expected. The number of continuing claims fell by 68,000 to 5.8 million, as forecast.