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Bonds: US Treasury yield curve flattest since 2007

By Alexander Bueso

Date: Friday 26 Aug 2016

Bonds: US Treasury yield curve flattest since 2007

(ShareCast News) - These were the movements in some of the most widely-followed 10-year sovereign bond yields:


US: 1.62% (+5bp)

UK: 0.56% (-1bp)
Germany: -0.07% (-0bp)
France: 0.17% (+1bp)
Spain: 0.944% (+2bp)
Italy: 1.13% (+0bp)
Greece: 8.04% (-2bp)
Portugal: 3.04% (+6bp)
Japan: -0.07% (+2bp)

Gilt prices were whipsawed - like most global financial assets - after the head of the US central bank said the case for an interest hike had strengthened in recent months and investors tried to draw the right implications from her speech.

At the close of trading in London they were slightly higher, although prices had come down from their intra-day lows.

Bond prices move inversely to their yields.

"In light of the continued solid performance of the labor market and our outlook for economic activity and inflation, I believe the case for an increase in the federal funds rate has strengthened in recent months," US Federal Reserve chair Janet Yellen said in a prepared speech.

Her remarks came against differing degrees of short-term 'hawkishness' from various Fed officials who were in attendance at the Jackson Hole Economic symposium.

To take note of, following her speech her number two at the Fed, vice-chair Stanley Fischer, told CNBC her comments were consistent with a possible September hike and two rate hikes before 2016 was out.

The elections could influence things happening in the economy and there was a case for fiscal policy and infrastructure investment in order to boost productivity, but those decisions were the remit of Congress and the President, Fischer said.

Towards the other end of the spectrum, speaking just after Fischer, in an interview with Bloomberg TV Fed governor Jerome Powell argued in favour of a gradual pace of rate increases, adding that a cautious approach on rate hikes was appropriate.

Powell also referenced strength in the US dollar as an important factor when considering when to tighten policy, a point that was also made by the president of the St.Louis Fed, James Bullard, earlier in the same day.

Of possible interest too, just before Yellen's speech the US Treasury yield curve was at its flattest since 2007, according to Bloomberg data.

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