Yields and basis point (bp) movements of some of the most-watched 10-year bonds this afternoon:

US: 1.97% (-3bp)
UK: 2.12% (-8bp)
Germany: 1.59% (-7bp)
France: 2.24% (-4bp)
Spain: 5.19% (2bp)
Italy: 4.50% (6bp)

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

Bond yields contracted across most of Europe with the exception of Spain and Italy.

US bond yields contracted by three basis points to 1.97% as a raft of economic data was released by statistical organisations in the country. The Department of Labor presented data showing that initial jobless claims for the week ending February 16th were 362,000 compared to an expected 355,000. Continuing claims were down slightly with 3.1m submitted compared to 3.2m in the previous week. Meanwhile, the Consumer Price Index remained unchanged at 0.1% month-on-month.

In the UK, bond yields contracted by the largest amount seen this week, eight basis points, to 2.12%. British factory orders improved more than had been expected while the total order book balance in the Confederation of British Industry's survey rose to -14 from -20 in January, beating expectations of a reading of -15 and well above the long-run average of -17.

Meanwhile data released by the Office for Budget Responsibility revealed that UK public finances recorded their highest surplus in five years in January valued at £11.4bn. This excluded interventions such as bank bailouts, compared with a surplus of £6.4bn.

In Germany, yields slid seven basis points to 1.59% as data published by Markit showed that the German Purchasing Managers' Index for the nation's manufacturing sector rose to a seasonally-adjusted 50.1 in February from a final reading of 49.8 in January. This represented a move into expansion territory for the first time in 12 months but slightly below expectations for an increase to 50.5.

Meanwhile, in France, bond yields slid by four basis points to 2.24% after the treasury sold €2.32bn of 0.25% of 2024 bonds at a yield of 0.54%. Meanwhile, credit ratings agency Standard & Poors was reported as saying that proposed labour reforms in France could stem rising labour costs and boost economic competitiveness.

Yields rose by two basis points to 5.19% in Spain as justice officials in the country staged a 24-hour walkout in protest at government cost-cutting measures that they said would limit access to justice and reduce the quality of the service they provide. According to Reuters news agency, an estimated 10,000 hearings were cancelled. The Treasury sold more bonds than it had targeted in its third debt sale of the week on Thursday. The treasury sold €4.2bn od debt due in 2015, 2019 and 2023 compared to a target range of €3-€4bn.

In Italy, bond yields expanded by six basis points to 4.50% as election campaigning intensified culminating in controversial comments being made by incumbent Prime Minister Mario Monti to an Italian radio station.

The leader was cited by Italian news agency Adnkronos as saying: "[German Chancellor Angela] Merkel fears the consolidation of parties from the left, especially in an election year for her. I don't think she has any wish to see the PD [Democratic Party] arrive in government." The country is due to vote on its next government over the weekend with several analysts having described it as a significant "risk event".

MF

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