US Treasuries added to yesterday's losses as the market awaits the outcome of the US Federal Open Market Committee meeting tomorrow.

The US sold $21bn of 10-year notes with a yield of 1.764%, in line with expectations. The bid-to-cover ratio was 2.85, below the 3.00 level which has been the norm of late.

The yield on 10-yield Treasuries moved up to 1.76% from 1.70% yesterday, more or less in line with the auction result.

German bunds lacked support after the German Constitutional Court (GCC) said it is OK with the legality of the European Stability Mechanism (ESM). The GCC approved the ESM, albeit with conditions, paving the way for Germany's parliament to ratify the ESM, save that any liability over the 190bn euro mark will have to be voted on.

Standard and Poor's (S&P) reacted in a positive manner to the German Constitutional Court's approval of the European Stability Mechanism (ESM), deeming the attached conditions not to be a significant restriction to Germany's efforts against the euro crisis.

S&P said that the contribution cap is a "mild" restriction. It expects the ESM to be able to carry out more flexible financial interventions such as the direct capitalisation of banks and bond purchases in the primary market. The latter would allow the European Central Bank (ECB) to begin its 'Outright Monetary Transactions' (OMT) as announced last week.

As bund prices fell, so the yield on the benchmark 10-year bund moved up to 1.62% from around 1.55% at the close yesterday.

In the UK, gilts also fell back, with the yield on 10-year gilts sirging nine-tenths of a percentage point to 1.83%.

JH

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