Bonds round-up: Consumer confidence dip lifts gilts
With UK equities taking a bath today following a woeful trading update from Marks & Spencer, gilts advanced strongly, with sentiment further bolstered by a further deterioration in consumer confidence.
Consumer confidence in the UK fell to its lowest in 10 months in December as food and oil prices rose again and house prices continued to fall, according to a Nationwide building society survey.
The building society's consumer confidence index dropped 1 point to 85 last month, its worst level since February 2007.
It was the third month running that sentiment has weakened, although the decline was not as severe as November's 12 point tumble.
This, allied with a small contraction in the annual inflation rate as measured by the British Retail Consortium's Shop Price Index, increased hopes of a cut in UK interest rates tomorrow, though most observers are still predicting no change in the UK base rate.
(Article continues below)Advertisement
Year-on-year, the Shop Price Index for December was 1.0% higher than a year ago, compared with 1.1% in November. Prices have now shown year-on-year increases in ten of the last twelve months despite food price inflation dipping to 3.8% from 4.3% in November.
The yield on the 10 year gilt fell 4 basis points to 4.41%.
European bonds were also wanted, pushing the yield on the 10-year bund 5 basis points lower to 4.1%, a level it has not seen since 6 December.
Investors chose to ignore data which showed the euro-zone economy expanded 0.8% in the third quarter, slightly higher than expected, after a 0.3% rise in growth in the second quarter.
In the US, however, equities bounced back after yesterday afternoon's sell-off, and the appeal of government debt palled. The yield on the 10-year Treasury note edged 2 basis points higher to 3.88%.
