Bonds: Yields fluctuate mildly as new month kicks off

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

US: 1.99% (-2bp)
UK: 2.09% (no change)
Germany: 1.65% (-2bp)
France: 2.24% (-2bp)
Spain: 5.23% (1bp)
Italy: 4.31% (no change)

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

Bond yields fluctuated mildly on Friday in the absence of major policy statements from Europe and America's key financial, political and economic institutions.

In the US, bond yields contracted by two basis points to 1.99% as data from the Bureau of Labor Department showed unemployment levels were marginally higher than expected at 7.9% compared to 7.8% in the previous reading. Total (NYSE: TOT - news) non-farm payroll employment increased by 157,000 and retail trade employment increased by 33,000 over the month.

Meanwhile, data from the University of Michigan's index of consumer sentiment showed that confidence among American households rose last month. The index recorded a reading of 73.8 in January, compared to 72.9 in December.

In the UK, 10-year bond yields were flat at 2.09% after some unsubstantiated market talk speculating that the country might lose its triple-AAA rating. As of the time of publishing the UK's credit rating was unchanged. The Debt Management Office announced plans to sell 0.25% of 2052 index-linked gilts in the week starting February 25th via a syndication and £2.5bn of one-, three- and six-month Treasury bills were successfully sold by close of play on Friday.

Europe's fastest growing economy, Germany, saw its bond yields slide by two basis points to 1.65% in the absence of any major monetary or economic policy decision announcement.

German Chancellor Angela Merkel told Joe Biden, Vice-President of the US, that she saw positive signs in the push for talks on a free-trade agreement between the US and the European Union. Reuters news agency quoted her as saying: "I personally wish for progress in EU-US free trade negotiations. There are positive signs." The news agency reported that a trade deal between the world's two largest economies - collectively home to 800m people - would unleash billions of dollars in transatlantic business.

France saw yields slide by the same amount to 2.24% as the Markit Purchasing Managers' Index showed manufacturing activity had fallen at the fastest pace in four months as new orders dropped the most since the global financial crisis. The index's reading came out at 42.9 in the month, down from 44.6 in December. Meanwhile, all eyes were looking to the week ahead, when France is scheduled to sell between €7-8bn of OAT bonds.

In Spain, bond yields climbed by one basis point to 5.23%. This happened on the same day that the Spanish treasury announced it would sell a 2015 bond with a 2.75% coupon and a 2018 bond with a 4.5% coupon and a 2029 bond with a 6.0% coupon next week.

In Italy, bond yields showed no change at 4.31% as a poll conducted by SWG showed that former premier Silvio Berlusconi's centre-right coalition had gained 1.3% in a week and was now 27.8% compared to 32.8% for Pier Luigi Bersani's centre left, which lost 1.6% in the poll.

MF