The following were the yield and basis point (bp) movements of some of the most-watched 10-year bonds this afternoon:

US: 1.87% (3bp)
UK: 2.04% (-2bp)
Germany: 1.59% (no change)
France: 2.16% (-2bp)
Spain: 5.08% (-8bp)
Italy: 4.18% (-5bp)

[NOTE: there are 100bp to a percentage point]

US markets reopened today after closing for Martin Luther King Junior day yesterday. 10-year bond yields rose by three basis points to 1.87% while the Chicago Federal National Activity Index showed economic growth moderated in December. The index's three-month moving average edged up from -1.13 in November to -0.11 in December representing its 10th consecutive reading below zero. December's result suggested that growth in national economic activity was below its historical trend.

UK and the rest of Europe however saw yields on 10-year bonds slide.

UK bond yields fell by two basis points to 2.04% as the country's AAA credit rating came under threat after it was revealed that the UK had borrowed £15.4bn last month, £600m more than a year earlier.

Market-influencing comments were made by several individuals. Adam Posen, a former policy maker told legislators about his experience at the Bank of England Monetary Policy Committee for three years claiming that the bank's non-executive directors, finance ministry officials and politicians had been unable to effectively hold Mervyn King to account. Posen claimed that King had opposed suggestions to look at boosting the economy by buying large sums of assets other than UK government bonds. Chancellor George Osbourne told ministers to start work immediately on efficiency savings in most departments for the 2015/16 year during a Cabinet meeting.

In Germany, bond yields showed no change remaining flat at 1.59%. Early in the morning, the Bundesbank dismissed rumours that President Jens Wiedmann would step down. Wiedmann delivered a speech in Frankfurt the same day cautioning that as central banks moved away from their primary concerns of price stability, competitive devaluations to make a country's products more affordable and boost exports could rise. Later in the day, a report on BorsenZeitung speculated that German regulator, BaFin, had asked lenders to assess the impact of theoretical separation of their operations.

In France, yields slid two basis points to 2.16% as French President Francois Hollande and German Chancellor Angela Merkel launched a day of activities to mark 50 years since the signing of the Elysee Treaty. French Foreign Minister Laurent Fabius told a German radio station that he considered the two countries were at "eye level". He was quoted as saying: "Our relations are supported by mutual respect and the insight that nobody is entitled to give the other any schoolmasterly lectures."

Spain saw its borrowing rates fall by the largest amount, with an eight basis point fall leaving yields at 5.08%. According to a report on Spain's compliance with its bank bailout, the European Commission does not expect the country to meet its 2012 deficit target of 6.3%.

Meanwhile, Spanish Finance Minister Luis de Guindos stated that the country's public deficit for 2012, which is due to be released next month, would "reflect the enormous efforts undertaken by the country and its regions throughout the year". Later on it emerged that Spain had tapped the sovereign debt market for a new round of funding, raising €2.8bn with the sale of three- and six-month bills.

Even more positively, the government sold €7bn in 10 year debt through a sindicate of banks. The amount on offer was oversubscribed by over three times (and at a rate of 5.403% or 365 basis points over mid-swap), with over 350 bids having been received. More than 60% of it was purchased by non-residents.

In Italy, bond yields were down five basis points to 4.18% on a day when no major announcements were made.

Across member countries, the Organisation for Economic Cooperation and Development showed that the employment rate had been flat at 65% in the third quarter of 2012.

MF

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