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

US: 1.86% (+1bp)
UK: 2.07% (+7bp)
Germany: 1.48% (+3bp)
France: 2.12% (+4bp)
Spain: 5.02% (-2bp)
Italy: 4.24% (-3bp)

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


The yield on a 10-year UK gilt continued to rise on Thursday, surpassing the two per cent mark for the first time in eight months, as demand for the safest assets diminished.

The 10-year UK bond yield has jumped from 1.83% to 2.07% over the past three days following the New Year's Day deal by US politicians to avert the fiscal cliff. This is the first time the borrowing rate has broken through the 2% level since May 2012. It registered a record-low of 1.407% on July 23rd.

According to market analyst Michael Hewson from CMC Markets, UK gilt yields are "potentially heralding further gains towards 2.20% as the 1.7-2% range that has contained recent price action gives way."

According to a Bloomberg News survey, the median estimate of economists is for the borrowing rate on the benchmark UK note to hit 2.4% by the end of 2013.

The UK government sold £3.75bn in five-year bonds on Thursday at an average yield of 0.958%, up from 0.787% at the previous auction in November. However, demand was stronger with the bid-to-cover ratio improving from 1.59 to 2.11.

Meanwhile, the pound weakened today after Markit's UK purchasing managers' index for the construction sector fell from 49.3 to 48.7 in December, missing the estimate of 49.5. Nationwide reported that UK average house prices fell by 0.1% month-on-month in December; forecasts were for no change.

BC

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