Bonds round-up: Strong consumer spending hits bonds
Better than expected UK retail sales figures for November raised the prospect of the Bank of England holding off a bit longer on the next interest rate, and thus deflated gilts today.
November retail sales rose by 0.4% from October against analysts' expectations of a 0.2% rise.
A 5.9% jump in non-store retail and repairs, which includes internet mail orders, helped lift November sales.
The yield on the 10-year gilt rose 4 basis points to 4.63%.
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US investors were also preoccupied with the impact on interest rate trends of consumer spending, as data for November showed a 1.1% increase in personal spending.
The rise was the highest monthly increase in more than two years and may convince the Fed that the next interest rate cut need only be a quarter point reduction and not the half point move that government bond holders would prefer.
The yield on the 10-year US Treasury rose 4 basis points to 4.09% as investors deserted bonds for fast-rising equities, which received a boost from a Wall Street Journal (WSJ) report that Merrill Lynch is to join the queue of American financial institutions accepting cash injections from state-owned investment groups in Asia. The WSJ said "The Thundering Herd" may get a $5bn cash infusion from Temasek, the Singapore state owned investment body.
The Wall Street rally also made its presence felt in the European debt markets, where government bonds fell back sharply. News that French business confidence in December held steady further undermined demand for government debt, and the yield on the 10-year bund rose 6 basis points to 4.31% as a result.
