Demand for government debt continues in Europe

A move by Sweden’s Riksbank to cut interest rates Tuesday sent eurozone and UK government bond yields tumbling and revived talk that eurozone interest rates might also be lowered soon.

Riksbank cut interest rates by half a percentage point to 1.5 percent. A cut had been expected, but only by a quarter of a point.

At the same time, figures out of France had consumer spending falling in May by its largest amount in 10 months. France also announced that it had lowered its growth forecast to no higher than 2 percent. The previous prediction had growth at 2 to 2.5 percent.

In light of all this news, yields on the German 10-year Bund fell by 8.5 basis points to 3.205 percent while in the UK the 10-year gilt lost 7.2 basis points to 4.338.

The bad news seemed to spur a demand for government debt, as a new issue of 5 billion in 10-year bonds in the Netherlands was oversubscribed by almost five times.

Meanwhile in the US, by mid-day 10-year Treasury bonds saw their yields fall by 5.2 basis points to 4.065 percent.

In Japan, yields on the 10-year government bond were up 0.5 basis points to 1.290 percent.

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