Bonds

LONDON (ShareCast) - US Treasuries firmed up ahead of today's auction of $35bn of three-year notes. The yield on two-year notes fell 10 basis points to 1.29%, as prices rose for the first time in four days.

Ten-year yields fell 4 ticks to 3.83%, extending the gap between two-year and ten-year yields to 2.54 percentage points, though this is still well down from last week's record gap of 2.81 points.

European bond prices also rose after some disappointing German economic data. German exports fell 4.8% in April, after rising a revised 0.3% in March. Economists were expecting exports in April to be broadly unchanged.

Meanwhile, German industrial production figures were also weaker than expected, with the index falling 1.9% in April after rising 0.3% in March. Economists had been expecting a rise of 0.3%.

The yield on the benchmark 10-year German bund fell 4 basis points to 3.64%.

In the UK, the auction of the 5% 2014 'tap' stock generated a bid to cover ratio of 2.25:1. Meanwhile, the government has enlisted the support of Barclays (LSE: BARC.L - news) , Goldman Sachs (NYSE: GS - news) , HSBC (LSE: HSBA.L - news) and Royal Bank of Scotland (LSE: RBS.L - news) to manage the sale of 25-year 4.5% gilts. The move is unusual, though by no means unprecedented, and signifies the extra lengths the government may have to go to in order to sell the enormous number of gilts needed to finance government debt.

As with their overseas counterparts, gilt prices headed higher, with the yield on the benchmark 10-year gilt dipping 2 ticks to 3.85%.