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

US: 1.85% (-4bp)
UK: 1.94% (-3bp)
Germany: 1.43% (-3bp)
France: 2.15% (-1bp)
Spain: 5.30% (-6bp)
Italy: 4.84% (-5bp)

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

Bond yields contracted across the board on Wednesday following a turbulent start to the week marked by an inconclusive general election result in the Eurozone's third-largest economy, Italy.

Following a day of double-digit basis-point rises in periphery countries, the bonds landscape was more subdued on Wednesday with contractions ranging from one, at the lower end of the scale, to six basis points recorded.

In the US, bond yields slid by four basis points to 1.85% as the US Commerce Department published seasonally adjusted data showing that new orders for manufactured durable goods decreased 5.2% in January to $217bn. Excluding transportation, new orders rose 1.9%. Overall shipments decreased 1.2% and inventories increased 0.2%.

Bond yields contracted by three basis points to 1.94% in the UK as the Office of National Statistics (ONS) revised its growth estimate for the year up from no growth to 0.2%. The government statistics body left its reading for the fourth quarter of 2012 unchanged at 0.3%. Data from the ONS also showed that service sector output was estimated to have increased by 0.6% in December 2012 compared with December 2011. Three of the four components were estimated to have increased, the most significant being distribution, hotel and restaurants.

Also of significance in the UK was a speech delivered by the Chairman of the Financial Services Authority, Lord Adair Turner. Lord Turner told a UK parliamentary group that he was considering putting a floor on the risk weights banks assigned to residential mortgages.

In Germany, the Eurozone's largest economy, bond yields fell by three basis points to 1.43% as the Deutsche Bundesbank reported that the German Import Price Index rose 0.1% in January. This contrasted to a 0.5% fall in December. Year-on-year the import price index fell 0.8% following a 0.3% increase and below forecasts of 0.6%.

Meanwhile, data published by the German Institute for Economic Research (DIW) indicated that the German economy could grow by 0.3% in the first quarter of the year. Ferdinand Fichtner, DIW Economic Chief, commented: "The German economy is still doing very well and is expected to revive in again shortly."

In France, bond yields fell by one basis point to 2.15% as data from the nation's statistics body, Insee, showed the consumer confidence indicator registered a reading of 86 in line with expectations.

In Spain, bond yields fell by six basis points to 5.30% as Spanish Prime Minister Mariano Rajoy said his top priority was to return the country's economy to growth after the budget deficit narrowed to 6.7% of output in 2012.

In Italy, bond yields dropped five basis points to 4.84% after a day of intense turbulence on Tuesday, which saw yields jump 40 basis points.

The country remains locked in a political stalemate after Pier Luigi Bersani's Democratic Party won a majority in the Chamber of Deputies but not in the Senate. A majority in both houses is needed in order to govern in Italy. The country sold the maximum €6.5bn at its bond auction and Italian national statistics institute Istat reported that the nation's manufacturing sentiment index rose to 88.5 in February from a revised reading of 88.3 in the previous month.

At the close of the day, attention was shifting to a meeting scheduled to be held between the European Commission President Jose Manuel Barrosso and Italian Prime Minister Mario Monti.

MF

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