Finance Markets

June 19, 2006

Scant news sends bond yields higher

Filed under: Bonds, Economy, US, Europe, UK, Japan

Yields on government bonds were up in global economies on Monday as a lack of substantive economic news caused investors to be cautious about their activities in the current climate of higher interest rates.

With August Fed futures indicating a 75 percent probability that the US Federal Reserve will raise interest rates again on August 8 and a near-certainty that rates will be raised this month as well, yields on US Treasury bonds were up. Ten-year issues added 1.8 basis points to a yield of 5.153 percent, while both two-year and thirty-year bonds were yielding 5.194 percent. Two-year paper was up 2.6 basis points, while thirty-year bonds gained 2.1 basis points.

Comments from a European Central Bank official that hinted at another rate hike soon in the Eurozone and a stronger equities market both sent bond yields higher in the region. The two-year Schatz added 4.6 basis points to 3.421 percent, while the ten-year Bund was yielding 3.971 percent, a gain of 2.2 basis points.

A stronger equities market and the lack of economic news in the UK also sent gilt yields higher, as did anticipation of Wednesday’s release of the minutes of the most recent meeting of the Bank of England’s monetary policy committee. Two-year gilts added 1.8 basis points to 4.787 percent and ten-year gilts gained 5.4 basis pints to a yield of 4.665 percent.

In Japan, the 10-year government bond gained 2 basis points to yield 1.825 percent. There is speculation that interest rates will rise above zero when the Bank of Japan meets in July, since equities markets in Japan seem to have stabilized after recent declines.

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