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

US: 2.01% (6bp)
UK: 2.13% (5bp)
Germany: 1.66% (6bp)
France: 2.29% (4bp)
Spain: 5.37% (-8bp)
Italy: 4.43% (-3bp)

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

A level of calm settled in peripheral European countries on Tuesday following a tumultuous Monday which saw Spanish and Italian yields soar with double-digit basis-point rises.

US 10-year bond yields dipped pushing yields up by six basis points to 2.01% on Tuesday following the release of data from the Institute of Supply Management indicating continued growth albeit at a slightly lower rate in the non-manufacturing sector.

The ISM's non-manufacturing index registered a reading of 55.2% in January, 0.5 percentage points lower than the seasonally adjusted 55.7% registered in December.

Meanwhile, news emerged on Tuesday morning that the US Justice Department had sued credit ratings agency Standard & Poor's, alleging the firm ignored its own standards to rate mortgage bonds that imploded during the financial crisis and cost investors billions.

S&P issued a statement denying any wrongdoing and saying the government suit would be "entirely without factual or legal merit", according to a Wall Street Journal report.

In the UK, bond yields rose by five basis points to 2.13% as the national regulator Ofwat reported that household water bills would rise by 3.5% over the next year. UK households will pay an average of £388 from April 2013 to March 2014.

Meanwhile, the UK service sector returned to growth in January fuelling optimism that the economy would not fall back into recession. The Markit Purchasing Managers' Index (PMI) for services rose to 51.5 from 48.9 in December, when the sector contracted for the first time in two years.

Bond yields climbed six basis points to 1.66% in Germany as the private sector expanded at its fastest rate in more than one year in January. Markit's composite PMI climbed to 54.4 in January, its highest level since June 2011. This contrasted to a reading of 50.3 in the previous month.

French 10-year bond yields grew by four basis points to 2.29% as French Premier Francois Hollande told the European Parliament that there could be no "a la carte" attitude to the EU.

Calling for a "multi-faceted Europe which would be neither a two-speed Europe nor an a la carte Europe", the leader warned that national interests risked taking precedence over the interests of the EU. Meanwhile, Markit data showed that French service-sector activity was stagnant in January. The survey showed that French services PMI remained unchanged at 43.6 last month.

In Spain, yields contracted by eight basis points to 5.37% one day after surging by double-digit basis points on allegations printed in a Spanish newspaper accusing Premier Mariano Rajoy of corruption. The allegations were immediately denied by Rajoy and, in the absence of policy decisions or economic views, the lowering of yields could be seen as more of an equalising movement. Meanwhile, Markit's PMI showed that Spanish services recorded a reading of 47 in January compared to 44.3 in December.

In Italy, yields slid three basis points to 4.43% as Pier Luigi Bersanai, the man that some polls indicate could become Italian Prime Minister after this month's elections, vowed to continue economic reforms credited with restoring his country's credibility.

Speaking at the German Council on Foreign Relations, a Berlin-based think tank, he said: "We know that we must guarantee that we are stable. We know that we need to continue the path of reforms and even toughen them."

MF

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