LONDON (SHARECAST) - The following were the yield and basis point (bp) movements of some of the most-watched 10-year bonds this afternoon:
US: 1.85% (-3bp)
UK: 2.03% (-2bp)
Germany: 1.57% (-5bp)
France: 2.15% (-4bp)
Spain: 5.06% (-7bp)
Italy: 4.15% (-5bp)
[NOTE: there are 100bp to a percentage point]
US bond yields slid three basis points as House Republicans proposed an extension of the deadline to approve an increase in the federal debt debt ceiling to April 15th. As well, some reports highlight that this time around the House majority leader, Republican John Boehner, did not repeat his long-stated formula of insisting that any debt ceiling increase must be matched by a package of spending cuts of at least equal size.
Data from trade association American Petroleum Institute showed that US domestic crude oil
production for 2012 averaged 6.4m barrels per day, representing a 15-year high and an increase of 13.8% from 2011 levels.
Also of note was the University of Michigan's preliminary index of consumer confidence for the month of January. The findings showed sentiment had fallen to 71.3, the lowest level seen since December 2011 and down from 72.9 in the previous month.
In the UK, yields slid two basis points to 2.03% as Prime Minister David Cameron postponed a highly anticipated speech on Europe in light of the evolving Algerian hostage situation.
The Bank of England's new policy maker, Ian McCafferty, delivered his first speech today as a member of the Monetary Policy Committee (MPC) before an audience of economists meeting at Bloomberg. He emphasised that "the crisis has changed the way that the economy works in ways that make the impact of monetary policy less obvious and decisions more challenging than before the crisis."
Hence, "[should further QE (whose efficacy may be less than thought) be necessary then it would be necessary] to consider carefully the timing of further flows and to be mindful of when any further policy stimulus, which is not costless, would be likely to have the greatest impact," he explained. in that same vein, McCafferty highlighted the need to keep an 'open mind' as regards the possible need of new policy tools.
"He also stated he had no particular bias regarding the need for a further depreciation in Sterling, seeming to prefer to let market forces determine it," comment analysts at Digital Look.
Meanwhile, UK retail sales data excluding car auto fuel for the month of December was published showing a three-month fall to -0.3%, below the expected 0.1% marking the lowest level seen since December 2010.
German yields contracted by five basis points on a day when no major policy announcements were made. However, at an event in Paris - to discuss the current state of financial regulation and the implementation of Basel III - European Central Bank governing council member Benoit Couere said he did not think that a lot of banks would return their long-term ECB loans (known by the acronym LTRO) over the coming next few months.
For some the fear of the above is what had been pushing Eurozone yields higher in the last few sessions.
In France, yields declined by four basis points on the same day that French Finance Minister Pierre Moscovici delivered a speech in Dublin stating that the recovery of the French economy would be subject to that of the Euro
area. "France will be unable to return to economic growth as the Eurozone will not be out of recession," he said.
Spain saw the sharpest drop in its market rates, with long-term bond yields moving lower by seven basis points to 5.06% despite the Bank of Spain revealing that the level of bad debt at Spanish banks had surged to a new high as more than one in nine loans is described as not likely to be repaid. The level of non-performing loans in Spanish banks rose by €2bn from October to November 2012 to a toal of €191bn.
Italian bond yields fell by five basis points as Bank of Italy Governor Visco signalled that the country might need further spending cuts and the central bank cut its 2013 gross domestic product forecast to -1% from a previous forecast of -0.2%, as revealed in its latest economic bulletin. Both Visco and the bulletin stressed the need to consolidate the improvement in public finances.