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

US: 1.86% (-2bp)
UK: 1.89% (-9bp)
Germany: 1.42% (-4bp)
France: 2.13% (-5bp)
Spain: 5.10% (no change)
Italy: 4.78% (5bp)

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

US bond yields contracted by two basis points to 1.86% as data from the US Department of Commerce's Bureau of Economic Analysis showed that personal income decreased by $505.5bn, or 3.6%, in January.

The bureau's data further showed that disposable personal income fell $491.4bn, or 4.0%, the same month. By contrast, personal consumption expenditures increased by $18.2bn, or 0.2%.

Elsewhere, data from Markit showed the strongest rise in manufacturing output for almost a year in February. The Purchasing Managers' Index recorded a reading of 54.3 in February, slightly more than the 55.8 reading recorded in January. Output and new order growth remained strong while a moderate rise in employment was recorded and input price inflation slowed to a four month low.

At the time of publication, the clock was ticking as US President Barack Obama and Congressional leaders met to discuss possible ways to avoid making spending cuts worth $85bn.

In the UK, yields slid by nine basis points to 1.89% as the Nationwide House Price Index showed that UK house prices rose by 0.2% in February. The index's data showed that the price of a typical UK home is now worth £162,638. Robert Gardner, Nationwide's Chief Economist, said: "While the economic backdrop remains challenging, there are reasons for cautious optimism that activity will gather momentum in the months ahead."

Meanwhile, data from Markit showed a return to contraction of the UK manufacturing sector in February. The seasonally adjusted Markit/CIPS Purchasing Managers' Index slipped below the neutral 50.0 mark in February, the first sub-par reading since last November. The PMI recorded 47.9, down from January's 50.5. Output and new orders both registered falls since January. Tough market conditions, both at home and abroad, weighed on demand and staffing levels reduced at the quickest pace for 40 months.

In Germany, bond yields contracted by four basis points to 1.42% as data from Destatis Statistisches Bundesamt, Germany's federal statistics bureau, showed that retail turnover rose 2.4% in real terms in January compared to the corresponding month in 2012. When adjusted for calendar and seasonal variations, the January turnover was in nominal terms 2.9% and in real terms 3.1% larger than that in December 2012.

The country saw its strongest rise in new orders since May 2011, led by resurgent export growth. Markit's Purchasing Managers' Index showed a reading of 50.3 in February, up from 49.8 in January. The February data indicated that production volumes in Germany's manufacturing sector continued to rise as a rebound in export demand led to the strongest expansion of overall new orders since May 2011.

In France, bond yields slid by five basis points to 2.13% as the French manufacturing sector remained in the throes of a steep downturn in February. The Markit Purchasing Managers' Index recorded a reading of 43.9 for the month from 42.9 in January. Output at French manufacturers decreased for a 12th consecutive month in February and the pace of contraction remained marked, in spite of an easing since January. Stocks of finished goods decreased for an 11th successive month in February as firms cut inventories in line with a weak demand outlook and to free up working capital.

In Spain, yields were flat at 5.10% as the country experienced its slowest fall in manufacturing output since May 2011. Markit data showed a further deterioration in Spanish manufacturing business conditions was recorded in February although the current downturn eased as output and new orders both fell at weaker rates. The rate of input cost inflation dropped off markedly during the month as some companies negotiated discounts with suppliers.

In Italy, bond yields climbed five basis points to 4.78% as attention turned to Italian President Giorgio Napolitano expressed views about the country's current political gridlock. The third largest economy in the Eurozone has been locked in a stalemate since its parliamentary elections produced an inconclusive result on Monday. According to Reuters news agency, the President told reporters at an event at Humboldt University: "I'm not interested in going back to vote again". The news agency also cited him saying: "I doubt that a new president will be thinking only of new elections. We'll have to see how to give Italy a government."

Markit's headline Purchasing Managers' Index recorded a three-month low for Italy as declines in output and new orders quickened. The seasonally adjusted Markit/ADACI Purchasing Managers' Index fell from January's 10-month high of 47.8 to 45.8 in February. That was its lowest since last November and the 19th sub-50 reading in successive months. Production at Italy's factories fell at an accelerated rate in February. The decline was broad-based by market group with the latest contraction in intermediate goods production sharper than the downturns recorded in the consumer and capital sectors.

MF

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