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Tuesday 02nd of December 2008
June 23, 2006

Bond yields up on interest rate concerns


by Elaine Frei

Yields on government bonds were up this week in the United States, the Eurozone, and in Japan. Investors’ main concerns revolved around the issue of interest rates.

In the United States, rumors began to circulate that the Federal Reserve will raise interest rates by 50 basis points rather than by the usual 25 basis points when it meets next week. Hard data was hard to come by, however, as officials of the Fed were observing a moratorium on comments that might provide hints about what they are planning to do. Some meat for speculation came when Barclays Capital said that it expects interest rates to be at 6 percent by the end of the year, rather than at the 5.5 percent currently expected by most analysts.

Yields on two-year treasury bonds were at 5.257 percent on Friday, a gain of 9 basis points over the week. Ten-year yields hit a four-year high at 5.218 percent, a gain of about 5 basis points.

In the Eurozone, the main talking point was speculation about when the European Central Bank will again raise interest rates. While the head of Bundesbank in Germany made comments implying that another rate hike was “warranted”, most analysts feel that such a move at the July meeting of the ECB is unlikely. The two-year Schatz gained 16 basis points on the week to 3.539 percent, while the ten-year Bund added 13 basis points to 4.074 percent.

Meanwhile, in the UK, ten-year gilts were up to a yield of 4.74 percent, a gain of 13 basis points.

In Japan, the ten-year government bond added 7 basis points during the week to a yield of 1.87 percent.

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