Stronger economic data from the US, UK and Europe left government bond prices lower on Thursday.

US Treasuries fell after news that the economy had grown faster in the fourth quarter than had been expected, while weekly jobless claims dropped for a third successive week.

Gross domestic product in the fourth quarter rose at an annual rate of 2.5 per cent. This was higher than last month’s estimate of 2.2 per cent. For all of 2006, GDP rose 3.3 per cent, compared with 3.2 per cent in 2005.

Weak demand for a $13bn auction of new five-year notes in the afternoon also lent a negative tone to the market. By late afternoon in New York, the yield on the benchmark 10-year bond was up 2 basis points at 4.644 per cent. The two-year yield was 4.7bp higher at 4.587 per cent.

European government bonds suffered as US growth data added to earlier news that German unemployment had fallen to its lowest level for six years this month, and comments from the European Central Bank president that interest rates were still accommodative.

This led some analysts to lift their forecasts for eurozone rates to 4.25 per cent by year end from the current 3.75 per cent. The yield on the rate-sensitive two-year Schatz rose 2.2bp to 3.999 per cent, while that on the 10-year Bund was up 0.5bp at 4.051 per cent.

In the UK, stronger-than-expected mortgage lending and retail sales data pushed UK gilt yields higher across the board, with the 10-year note almost breaking through the 5 per cent level. The data were expected to add to pressure for a further rise in interest rates.

The yield on the 10-year gilt ended up 3bp at 4.946 per cent, while that on the two-year was 4.1bp higher at 5.436 per cent.

Prices of Japanese government bonds rose on expectations that core consumer price numbers on Friday will show a return to deflation.

The yield on the 10-year fell 3bp to 1.650 per cent.

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