Government bond prices up in US, UK, Eurozone

Prices for government bonds were up both in the United States and in Europe and the UK on Tuesday as producer price inflation fell more than had been anticipated. Core inflation was down more than in any month since August 1993. Meanwhile, while retail sales were down a bit less than had been expected in October, September’s numbers were revised downward. Both reports led to renewed hopes in some quarters that the Federal Reserve might drop interest rates early in the new year.

Yields on the two-year US Treasury bond dropped 3 basis points to a yield of 4.747 percent, while the ten-year bond was 3.7 basis points lower to 4.575 percent by the middle of the session in New York.

The price gains in the US helped Eurozone bonds. Economic growth in the region has been weaker than had been expected, while business sentiment in German was lower. Late in the day in London, the two-year Schatz had dropped 0.6 basis points to 3.703 percent, while the ten-year Bund was 1.5 basis points lower to a yield of 3.714 percent.

Inflation came in lower than expected in the UK. While October’s inflation was at 2.4 percent on an annualized basis, above what the Bank of England wants, it was less than analysts had thought it would be. The two-year gilt was yielding 4.957 percent, down 4.6 basis points, while the ten-year gilt was down 3.3 basis points to a yield of 4.531 percent.

Bucking the trend, the yield on ten-year Japanese government bonds added 6.5 basis points to yield 1.72 percent. Prices were down on new data that had the Japanese economy growing at more than twice the rate that had been expected in the third quarter.

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