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Bond Markets

Falling stocks help push yields lower

LONDON: Government bond yields in the U.S. and Europe fell on Thursday, with weakness in equity markets pushing up demand for bonds.

Analysts said U.S. economic data pointing to stronger growth and comments by European Central Bank President Wim Duisenberg about future interest rate rises were largely shrugged off.

"Pressure on the equity market is no doubt helping to underpin Treasuries at these levels," said Philip Tyson, strategist at HSBC.

"In Bunds, we've also seen better price action. The euro currency held up after the ECB meeting, which was a supportive factor for Bunds."

At 1600 GMT, the U.S. 10-year Treasury note yield was down 2.5 basis points at 6.124 percent. The 10-year Bund yield was down 6.5 bp at 5.252 percent.

The European Central Bank, as expected, left interest rates on hold but dealers said euro debt would take its direction from U.S. Treasuries.

The ECB Council, meeting in Madrid, left its key refinancing rate at 3.50 percent but signalled it would be vigilant with growth strong and the euro currency weak.

Euro debt yields touched lows for the day after the ECB's announcement and stayed low after Duisenberg told a news conference monetary policy was still very accommodative.

Analysts said Duisenberg had made clear another interest rate rise was in the pipeline.

"We are reading this as favouring a tightening bias but at the moment the market is still a bit difficult to read," said Tim Williams, fixed income analyst at IDEAglobal.com in London.

He said the rest of the session would be driven by Treasuries, which in turn would take their cue from stocks.

"Until we see how the Treasuries market turns out, it is not going to be that clear how the market has actually received Duisenberg's comments," Williams said.

The Dow Jones industrial average .DJI was marginally higher while the technology-heavy Nasdaq was off two percent at 1610 GMT.

U.S. Treasuries were ahead after dipping briefly on strong data showing economic output grew at a 7.3 percent annual rate in the fourth quarter.-Reuters