Government bonds rally amid flight to safety
Government bonds rally amid flight to safety
By Paul J Davies and Rachel Morarjee in London, Saskia Scholtes in New York and David Turner in Tokyo
Copyright The Financial Times Limited 2007
Published: March 2 2007 19:07 | Last updated: March 2 2007 22:01
Government bonds continued to rally this week, benefiting from a flight to safety amid turmoil in financial markets.
With riskier assets being sold off, investors appeared to move in to the safe haven of government bonds.
William O’Donnell, interest rate strategist at UBS, said the trend had started late in the previous week amid concerns over the subprime mortage market.
Bonds had rallied further on reports that Alan Greenspan had warned the US could face a recession by the end of this year, although it was later clarified that the former US Federal Reserve chairman had indicated it was not a probable scenario.
The turmoil on equity markets, triggered by a sharp slide in the Shanghai exchange, then sent bonds rallying even more sharply.
“This was a fire looking for a match. China [stock markets tumbling] was that match and so off it went,” Mr O’Donnell said.
David Ader, US government bond strategist at RBS Greenwich Capital, said: “We cannot emphasise enough how the recent swings in the market have been related to swings in the stock market.”
US Treasuries outperformed other markets with shorter-dated debt seeing the strongest reaction. The yield on two-year Treasuries has dropped more than 31 basis points since the close on February 22, to hit 4.55 per cent by late afternoon on Friday. The yield on the 10-year fell about 23bp to 4.509 per cent over the same period.
European government bonds rallied only slightly more modestly with the yields on the two-year Schatz and the 10-year bunds both down a touch more than 15bp to 3.821 per cent and 3.932 per cent respectively over the same period.
In UK gilts, the picture was more mixed, with longer-dated bonds outperforming European issues and shorter-dated deals. The 10-year yield dropped 18.7bp to 4.745 per cent, while that on the two-year was 9.9bp lower at 5.288 per cent.
The yield curve on Japanese government bonds steepened on Friday, re sponding to bearish data for interest rates. This included the news that Japan’s already low level of core inflation petered in January.
The yield on the two-year fell 1.5bp to 0.820 per cent, though yields for ultra-long bonds rose a touch.
By Paul J Davies and Rachel Morarjee in London, Saskia Scholtes in New York and David Turner in Tokyo
Copyright The Financial Times Limited 2007
Published: March 2 2007 19:07 | Last updated: March 2 2007 22:01
Government bonds continued to rally this week, benefiting from a flight to safety amid turmoil in financial markets.
With riskier assets being sold off, investors appeared to move in to the safe haven of government bonds.
William O’Donnell, interest rate strategist at UBS, said the trend had started late in the previous week amid concerns over the subprime mortage market.
Bonds had rallied further on reports that Alan Greenspan had warned the US could face a recession by the end of this year, although it was later clarified that the former US Federal Reserve chairman had indicated it was not a probable scenario.
The turmoil on equity markets, triggered by a sharp slide in the Shanghai exchange, then sent bonds rallying even more sharply.
“This was a fire looking for a match. China [stock markets tumbling] was that match and so off it went,” Mr O’Donnell said.
David Ader, US government bond strategist at RBS Greenwich Capital, said: “We cannot emphasise enough how the recent swings in the market have been related to swings in the stock market.”
US Treasuries outperformed other markets with shorter-dated debt seeing the strongest reaction. The yield on two-year Treasuries has dropped more than 31 basis points since the close on February 22, to hit 4.55 per cent by late afternoon on Friday. The yield on the 10-year fell about 23bp to 4.509 per cent over the same period.
European government bonds rallied only slightly more modestly with the yields on the two-year Schatz and the 10-year bunds both down a touch more than 15bp to 3.821 per cent and 3.932 per cent respectively over the same period.
In UK gilts, the picture was more mixed, with longer-dated bonds outperforming European issues and shorter-dated deals. The 10-year yield dropped 18.7bp to 4.745 per cent, while that on the two-year was 9.9bp lower at 5.288 per cent.
The yield curve on Japanese government bonds steepened on Friday, re sponding to bearish data for interest rates. This included the news that Japan’s already low level of core inflation petered in January.
The yield on the two-year fell 1.5bp to 0.820 per cent, though yields for ultra-long bonds rose a touch.
posted by Carlos T Mock @ 8:41 AM
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