Bonds round-up: Yields fall on US unemployment rise

LONDON (ShareCast) - The difference between the ten-year and two-year Treasury yields widened further as US employment rose above 10%.

Ten-year yields fell two basis points to 3.51% while two-year yields declined three basis points to 0.84%.

US unemployment is at its highest level for 26 years. The rate rose from 9.8% to 10.2% during October. That is a much bigger increase than forecast.

Non-farm payrolls saw a 190,000 decline, versus expectations of a 175,000 fall. October's fall was the 22nd month in succession in which payroll numbers have declined.

G20 finance ministers are meeting at St. Andrews, Scotland. There are worries that fiscal stimulus measures will create asset price bubbles and this is one of the main topics up for discussion.

Nomura argues that UK gilts may struggle to outperform against other international bonds because of the extension of quantitative easing.

Medium-term gilts rose sharply suggesting that interest rates could remain relatively low for some time. Two-year gilt yields fell six basis points to 0.83%. Longer-term gilts prices fell and ten-year gilt yields rose three basis points to 3.89%. That means that the difference between two-year and ten-year gilt yields is now more than 3%.

Year-on-year UK input price inflation rose by 0.1% in October. Analysts had expected a fall of 1.3% after September's decline of 6.2%. Sterling's weakness is having a negative effect on input inflation.

Output price inflation rose to an annual figure of 1.7% in October, up from 0.4% in September.

German bunds followed a similar pattern to UK gilts. Two-year yields fell three basis points to 1.27% while ten-year bund yields rose one basis point to 3.36%.