Bond markets pause on US rates decision

Activity in U.S. and European bond markets was light on early Tuesday as investors awaited a decision by the U.S. Federal Open market Committee as to whether or not they will raise U.S. interest rates. It is expected that short-term interest rates will be raised 0.25 percent to 3 percent.

In the U.S., better than expected news on new factory orders spurred some selling. Yields on 10-year Treasury bonds were steady at 4.198 percent at mid-afternoon in New York, while yields on 2-year bonds stood at 3.637 percent.

In the UK, growth concerns were prevalent on news of the worst retail sales volume in ten years and on information that the manufacturing sector contracted for the first time in 2 years.

Prices of gilts rose and yields on 10-year bonds fell by 2.9 basis points to 4.508 percent. Besides anticipation of the Fed’s decision, eurozone bond markets were kept subdued by news of rising unemployment in the eurozone and particularly in Germany.

Yields on the 10-year Bund fell to 3.373 percent before rising to 3.376 percent, down 2.2 basis points for the day. The 2-year Schatz was down 2.2 basis points as well, to 2.213 percent.

The news about unemployment was also seen as a reason for the European Central Bank to hold the line on its current 2 percent interest rate.

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