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

US: 1.93% (-2bp)
UK: 1.86% (-1bp)
Germany: 1.36% (-2bp)
France: 2.01% (-2bp)
Spain: 4.87% (-11bp)
Italy: 4.57% (-6bp)

Bond yields contracted by two basis points to 1.93% in the US as the Federal Reserve Bank of Philadelphia published its March 2013 business outlook indicating an overall improvement in the region's manufacturing sector this month. Most significantly, the indicators for general activity and new orders improved markedly and the survey broadly recorded positive readings. Indicators for shipments and employment remained positive and improved slightly in March. The survey's broadest measure of manufacturing conditions, the diffusion index of current activity, increased from a reading of -12.5 in February to 2.0 this month. Labor market conditions showed continued signs of stability but little overall growth. The employment index increased from 0.9 in February to 2.7 this month, its second consecutive positive reading.

In the UK, bond yields fell by a single basis point to 1.86% as manufacturers expected output to accelerate sharply in the next three months, according to the Confederation of British Industry's latest monthly industrial trends survey. The CBI's survey of 398 firms found that output growth over the last three months remained steady but subdued. The outlook is expected to be brighter for the next quarter, with output volumes expected to rise rapidly with the anticipated pick-up particularly marked in the food, drink and tobacco and mechanical engineering sectors.

In Germany, bond yields slid by two basis points to 1.36% as Markit data showed the slowest growth of the German private sector output so far this year. German private sector output growth eased further from January's 19-month high. This was highlighted by a fall in the seasonally adjusted Markit Flash Germany Composite Output Index to 51.0 in March from 53.3 in February. This was the lowest reading for three months and indicated only a marginal pace of overall expansion.

Moreover, the headline index dropped 2.3 points since February, representing the most marked month-on-month slowdown since July 2011. March data indicated weaker performances in both the manufacturing and service sectors and service providers indicated that business activity rose at the slowest pace in the current four-month period of expansion.

French bond yields dropped by two basis points to 2.01% as data from Markit showed the sharpest fall in French private sector output for four years in March. Private sector firms in France reported a further steep decline in output during March. Moreover, the rate of contraction accelerated to the sharpest in four years. This was signalled by the Markit Flash France Composite Output Index based on around 85% of normal monthly survey replies, falling from 43.1 in February to 42.1.

Dragging the composite figure down was a faster decline in service sector business activity during March. The latest fall was the steepest since February 2009 and manufacturing output was also down markedly but the pace of decline eased slightly to the slowest in three months.

In Spain, bond yields plummeted by 11 basis points to 4.87% as the country sold €4.51bn of bonds versus €4.0bn maximum target. Meanwhile, the board of Sareb, approved the business plan that will govern the 15-year life of the entity. Sareb plans to sell in the first five years almost half of its portfolio of housing, some 42,500 units. It is also envisaged that some of the homes that are designed to manage the rental market. The plan envisages a cumulative return to shareholders of between 13 and 14%, similar to that established the initial document.

In Italy, bond yields fell by six basis points to 4.57% as Beppe Grillo was reported to have asked Italian President Giorgio Napolitano to give his party a mandate to form a government, according to Bloomberg. The news agency cited Roberta Lombardi, the Chief Whip of Grillo's party as saying: "The Five Star Movement asked for a full mandate to present its government agenda in parliament."

MF

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