Bonds round-up: Bonds ignored in equity stampede
Hopes of a cut in US interest rates have proved more of a boost to equities than government bonds today, and the latter fall back in both the US and Europe, despite mounting evidence of weakening consumer spending trends.
Fed chairman Ben Bernanke said late Thursday that the central bank will have to be "exceptionally alert and flexible" ahead of its next meeting, raising expectations that a further cut is still on the cards.
Investors responded by loading up on equities, leaving bonds out in the cold. Not even the release of lower than expected US consumer spending figures for October could boost the appeal of fixed-income stocks. The 0.2% rise in consumer spending followed a 0.3% rise in September, and was around half as high as economists expected.
As a result of the retreat in bond prices, the yield on the benchmark 10-year Treasury note moved back towards 4%, rising 5 basis points on the day to 3.99%.
UK gilts were weaker still, following a strong performance on Thursday when fears over the health of the housing market boosted demand for the safety of government debt.
UK consumer confidence took another hit in November, falling to its lowest level since March 2003 as higher petrol prices and worries about rising mortgage costs weighed.
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The monthly survey from Gfk/NOP revealed sentiment dropped for the fifth month in a row last month to -10 from -8 in October, worse than the read of -9 analysts had expected.
The 10-year gilt's yield rose 5 basis points to 4.63% while the yield on the 2-year gilt climbed 7 basis points to 4.51%.
In Europe where, unlike in the US and the UK, the likelihood of an interest rate cut in the near future is remote, government bond prices declined steeply, though they are still likely to show their first monthly improvement since August.
European Central Bank council member Klaus Liebscher yesterday underlined the central bank's continuing concern about the inflation trend when he said inflation risks are "clearly on the upside".
Some comfort for bond holders was drawn from German retail sales, which fell in October by the most in nigh on a year, dipping 3.3%.
