Bonds round-up: Bonds rise on US recession fears
As is often the case, bad news is good news for holders of government debt. Today, government bonds advanced briskly after an unexpectedly large fall in the Institute for Supply Management's measurement of service sector activity.
The US index of service sector business activity fell to 41.9 in January from a revised 54.4 in December, when economists had been expecting the January reading to be in the region of 53 to 54. It's the first fall in the index since March 2003 and the lowest level since October 2001. A reading of less than 50 is regarded as a contraction in the sector.
US treasuries responded to the news by rising sharply. The yield on the benchmark 10-year treasury hit 3.59%, up 11 basis points.
UK and European bonds responded similarly.
Gilts moved higher despite house price data which suggested the housing market is holding up better than expected.
Figures from the indicated UK house prices stayed the same as the previous month in January. The index, which was expected to show a 0.4% drop in prices after a 1.3% gain in December, had annual house price inflation down at 4.5% versus 5.2% the month before.
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Better than expected news from the UK's service sector failed to outweigh the gloomy news from the US. The UK purchasing managers' index, published jointly by the Royal Bank of Scotland and NTC Research, rose to 52.5 in January from 52.4 in December. Economists had been expecting a fall to 52.0.
The index of input prices dipped to 63.8 from 63.9, but prices charged climbed to 55.3 from 54.5.
The yield on the 10-year benchmark gilt fell 10 basis points to 4.41%.
Meanwhile, the euro zone Purchasing Managers' Index for January was revised downwards from 52.0 to 50.6; a value below 50 indicates a sector contraction.
The benchmark 10-year bund rose, pushing the yield down to 3.84%, down 9 basis points.
