Bonds: US yields slide as debt ceiling vote result anticipated

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LONDON (ShareCast) - The following were the yield and basis point (bp) movements in some of the most-watched 10-year bonds this afternoon:

US: 1.82% (-2bp)
UK: 2.00% (-2bp)
Germany: 1.57% (-1bp)
France: 2.14% (-1bp)
Spain: 5.07% (-4bp)
Italy: 4.18% (-2bp)

[NOTE: there are 100bp to a percentage point]

US bond yields slid by two basis points to 1.82% on Wednesday as all eyes shifted to the US House of Representatives' vote to decide whether the government's debt ceiling would be extended by three months until May 19th.

Meanwhile, the US Mortgage Bankers Association's index rose 7% in the week ending January 18th compared to the previous week. This was less than half the index's growth rate for the previous week, when the index grew by 15.2%. The average rate on a 30-year fixed term loan increased to 3.62% from 3.61%

In the UK, bond yields also fell by two basis points to 2% following policy announcements and the publication of key data. Prime minister David Cameron's much anticipated speech on EU membership was delivered with the leader announcing that a referendum would be called in the first half of the next parliament.

Meanwhile, the Bank of England's Monetary Policy Committee voted to keep the benchmark interest rate at 0.5% and voted in favour of keeping the asset purchase programme unchanged at £375bn.

German bond yields fell by one basis point to 1.57% as the Association of German Banks (BDB) warned of the consequences of a debate on the UK leaving the EU. Andreas Schmitz, President of the BDB said: "The debate about the UK leaving the EU is a dangerous game with fire... The UK's possible exit from the EU risks jeopardising the achievements of the European international market."

French yields edged down by 1bp to 2.14% after the French business confidence indicator showed a reading of 86 for the month of January, which was below the expected reading of 90 and less than the previous level recorded of 89. Meanwhile French Finance Minister Pierre Moscovici told Europe 1 Radio that he had no reason to change the country's growth outlook from 0.8%.

Spanish yields contracted the most, by four basis points, to 5.07% as government data showed that the economy had shrunken by 0.6% in the fourth quarter of 2012 compared to the previous quarter. On a regional basis, the semi-autonomous Madrid region stated that it had placed €2.27bn in debt through two separate issues.

In Italy, yields contracted by two basis points to 4.18%. The Italian trade balance for non-EU for the month of December was 3.322 bn compared to 1.855bn in November (Xetra: A0Z24E - news) . The Italian current account for November month-on-month was 683bn euros compared to a previous deficit of 245m euros.

In addition to the world Economic Forum entering its third day in Davos, Switzerland, other market influencing pan-European events included the European Central Bank President Mario Draghi speaking overnight saying that the "darkest clouds" hanging over the Eurozone had receded.

The International Monetary Fund reduced its growth forecast for 2013 and the European Banking Association said that top banks in the EU should develop recovery plans by the end of 2013.

MF