government bonds

Three-year government bonds today sold at yields lower than March bonds, as demand picked up for assets perceived as safe. Falling yields have also been seen recently in the 1- , 5- and 7- year bonds. If the yield drop is temporary, the US stands to benefit in particular tomorrow and Thursday, when 10- and 30- year bonds are auctioned.

The UK government has just secured £2.25bn debt to be repaid over 17.5 years at a rate of 4.472 per cent. This is pretty good going, relative to other European countries: the rate (middle dot, green line) is only fractionally higher than the Feb-Mar yield curve (red line). Maybe, as Chris said yesterday, the UK is just lucky, for now. (Source data: Debt Management Office.)

You might soon be able to invest in roads, railways and power lines in Africa, if there is support for a suggestion from Kenya’s central bank. So-called infrastructure bonds have recently been put forward by the UK and US, but cross-border bonds are rare. Quite how they would be priced is unclear.

From Reuters: Read more

The cost of government debt is rising almost vertically in Greece today, and rumour has it that no-one is selling insurance against the debt’s default.

This follows news of a worse-than-expected Greek budget deficit of 13.6 per cent. Previous estimates pinned the deficit at 12.9 per cent. Read more

First the euro rose—on relief—and then it fell—on concern.

Relief because there was plenty of demand for Greek debt: today’s €1.2bn auction of 26- and 52- week rollover debt was oversubscribed. So Greece can, for now, still raise debt through the market – no bail-out required. Read more

What a day for debt. Long-term debt is costing the US government more than at any time in recent history. The latest auction on 30-year US Treasuries secured the highest yields since August 2007 – 4.77 per cent. Demand was slightly lower than the last auction, with $35bn bids for $13bn of debt. Record levels of government debt make rising rates a worry.

Yesterday, yields on 10-year bonds neared their Lehman’s highs, although they have not yet exceeded them. Unlike the 30-year auction, demand was extremely high for the 10-year bonds. This would normally act to dampen yields – so rates would have been higher still had there been more normal levels of demand.

The US government is paying more on its debt than at any time since mid-2009, and, prior to that, since the fall of Lehman Brothers. And demand for 10-year debt at the latest auction was at a high – almost double the levels seen during Lehman’s.

In yesterday’s 10-year treasury auction, $78bn debt was demanded, of which $21bn was accepted. The ratio of the two – the bid-to-cover ratio, an indicator of demand – was the highest since before Lehman’s. Read more

The Greek central bank would pay a lower interest rate on 30-year debt than on 10-year debt, if issued today. Usually, longer-term debt commands higher interest rates, as investors want compensation for the additional risk of holding the debt for longer.

Demand for shorter-dated debt provides an explanation. The shorter-dated end of the curve (left hand side) has moved up far more than the longer-term end (right hand side).

Most outstanding Greek debt is due to expire (and need refinancing) within the next ten years (see left).

In 2009, this partly negative yield curve was rare. So far this year, it has been more common. The most inverted curve occurred around February 8, when an IMF bail-out was mooted. Yields since then have dropped for all terms, only to rise again – extremely sharply, and to record levels – since Easter. Although a bail-out plan has been agreed in principle between the EU and IMF, there is disagreement over how much Athens should pay for help. Most nations agree on a rate of 4-4.5 per cent for debt, but Germany says market rates are appropriate. Read more

Perhaps for old times’ sake, the inaugural meeting of a new uber-network took place at the Bundesbank in Frankfurt. The next one is being held at the central bank of Kuala Lumpur, and subsequent meetings are planned for Asia, the Middle East and Africa.

The network consists of central banks, sovereign wealth funds, regulators, asset managers and retail banks. Membership is by invitation, and discussions are under the Chatham House rule. Reasons for meeting range from tips on investment strategies to regulation proposals. But one unnamed attendee observed “it ma[de] sense” for buyers and sellers of government bonds to get together. From ft.com:

Central banks and debt management offices are on a charm offensive

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