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Thursday 28th of August 2008
October 26, 2006

Bond prices rise on Fed interest rate decision


by Elaine Frei

Government bond prices were up and yields fell on Thursday in response to a decision by the US Federal Reserve to keep interest rates steady for the time being as well as its comments following the decision that did not sound too strong a warning on inflation. Also helping prices higher was new data on durable goods orders showing that, excluding transportation goods, orders were up just 0.1 percent in September. The ten-year US Treasury bond dropped 3.8 basis points to a yield of 4.73 percent.

In Europe, meanwhile, ten-year yields also fell in response to the Fed decision. The ten-year Bund dropped 1 basis point to 3.85 percent, while the ten-year gilt was 4 basis points lower to a yield of 4.66 percent. The price gains came as the president of the European Central Bank said that inflation would be an issue for the rest of this year and into next year.

In Japan, government bonds were helped by the US bond market, with the ten-year JGB falling 5 basis points to 1.750 percent. Shorter-dated bonds also saw prices go up and yields drop after an auction of two-year issues saw demand quadruple supply. Yields on two-year bonds were 0.3 basis points lower to 0.755 percent.

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