Bonds round-up: Moodys announcement spurs bonds
The week-end announcement by credit rating agency Moody's that it is contemplating a spate of credit-rating cuts on $105bn of debt sold by Structured Investment Vehicles (SIVs) sent investors scurrying for the safety of government debt.
Prices rose in the UK, Europe and the USA, with sentiment in the latter further boosted by a statement by Federal Reserve Bank of Boston President Eric Rosgengren, who predicted two quarters of below average growth for the US economy.
The comments were interpreted as a softening in the Fed's stance on further interest rate cuts. As prices raced ahead, the yield on the 10-year Treasury note slipped 5 basis points to 3.89%.
Lethargic manufacturing output further boosted the appeal of US Treasuries. The Institute for Supply Management's manufacturing index in November eased to 50.8 from 50.9 in October; a level above 50 implies expansion, but the November figure was the lowest for ten months.
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In Europe, the yield on the benchmark 10-year bund headed back down towards 4%, sliding 6 basis points to 4.07%, as the rising cost of inter-bank lending begins to weigh heavily on the prospects of economic growth.
The London Inter-bank Offered Rate (LIBOR) rose briskly by 63 basis points to 6.72%, hitting its highest level since late 1998.
UK gilts were also in demand ahead of this week's meeting of the Bank of England's Monetary Policy Committee, and the yield on the 10-year gilt dipped 6 basis points to 4.58%.
Gilts rose despite hopes of an interest rate cut receiving a blow from unexpected growth in the UK manufacturing sector. The Chartered Institute of Purchasing and Supply's purchasing managers index rose to 54.4 last month, up from a downwardly revised 52.8 in October. Experts had been predicting a drop to 52.5.
