Government bond prices fell and yields pushed higher on Tuesday after the release of stronger than expected core inflation figures from the world’s largest economy.

A speech by Ben Bernanke, chairman of the Federal Reserve, which helped shift US interest rate rise expectations once more, further contributed to weaker US Treasuries.

After the market closed on Monday, Mr Bernanke gave a relatively upbeat outlook on the economy, but few actual clues about interest rates just a week before the Fed’s Open Market Committee meets.

But the positive tone of the speech helped send yields higher after a scaling back of rate rise expectations last week sent bonds sharply higher and yields lower. Traders said short-term speculative investors were cutting back long positions built up last week.

A headline plunge in the producer price index for February first lifted bonds but that soon gave way to selling on the core PPI reading, which excludes energy and food. That measure rose 0.3 per cent, pushing the annual rate to 1.7 per cent from 1.5 per cent, even as the overall rate slipped to 3.7 per cent from 5.7 per cent.

“The factors that will dictate the future course of inflation pressures – growth, unemployment, capacity utilisation – all give policymakers reason to remain concerned. I do not expect to see the Fed let its guard down on inflation soon,” said Stephen Stanley, economist at RBS Greenwich Capital.

By late trade in New York, yields on two-year notes were up 7.6 basis points at 4.734 per cent while 10-year yields were up 5.7bp at 4.719 per cent.

A rise in the annual rate of inflation in the UK did little to cheer gilts. But investors were jittery ahead of the funding remit of the Debt Management Office for the next fiscal year, expected after the Budget is announced on Wednesday.

Analysts and investors expected a rise in issuance of both long-dated and index-linked gilts. The yield on the two-year gilt was little changed at 4.417 per cent and the 10-year gilt was yielding 4.335 per cent, down just 0.6bp. Higher prices on the 50-year gilt pushed its yield down 2.1bp to 3.9 per cent.

Unexpectedly strong French consumer spending figures helped fuel bearish sentiment in eurozone government bonds. The yield on the two-year Schatz rose 0.5bp to 3.217 per cent while ythe 10-year Bund yield was 0.3bp higher at 3.663 per cent.

Household consumption of manufactured goods rose 1.8 per cent in February, well above expectations, compared to a revised 0.5 per cent increase in January.

But as buyers returned to the market in afternoon trading, the yield on the two-year Schatz fell 1 basis point to 3.201 per cent and the 10-year Bund yield lost 1.4bp to 3.647 per cent.

UK Gilts, which also lost ground in early trading, started to recover. Prices fell after data showed that the annual rate of inflation rose to 2 per cent in February from 1.9 per cent seen in January.

The yield on the two-year gilt was still up 1bp to 4.417 per cent but the 10-year gilt was yielding 4.326 per cent, down 1.5bp.

Otherwise, gilt investors were awaiting the much anticipated Budget on Wednesday, which will be accompanied by next fiscal year’s remit for the Debt Management Office.

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