Bond yields fall further

The main currency pairs were confined to very tight ranges yesterday and they are little changed again this morning, with the euro trading at around $1.0950 and 86.7p against the dollar and sterling respectively and the pound trading at about $1.263 versus the US currency.

Government bond yields continued to head lower as the market prices in substantial rate cuts by the main central banks next year. US 10-year yields closed at their lows of the day at about 3.85%, despite a much stronger than expected consumer confidence reading for December, and German yields fell below 2% for the first time since early this year to 1.97%, while softer than expected inflation data saw UK 10-year yields end more than 10bps lower just shy of 3.50%.

Comments by Fed member Harker will have added to the exuberance in bond markets. He said “it’s important that we start to move (interest) rates down,” albeit adding that “we don’t have to do it too fast, and we’re not going to do it right away,” noting that the economy appears to be slowing faster than official data suggest.

Consumer confidence in the US bounced strongly in December according to the Conference Board measure, jumping by more than 10 points, with respondents less pessimistic about their personal income prospects over the coming months.

Economic data due today include a final estimate of third quarter GDP in the US as well as the regular weekly jobless claims and the Philadelphia Fed manufacturing index .