This resulted in a broad-based reduction in yields. Core government bonds were also boosted, late in the month, by political uncertainty on both sides of the Atlantic.
Good news
US Treasury yields peaked early in the month, falling first on news of weaker-than-expected job growth in the August employment report.
In the wider economy the dataflow has continued to be fairly positive. Whatever about the most recent employment data, consumer confidence remains firm in the US, slightly lower in September than August but still much stronger than earlier in the year. Business sentiment remains positive, with the ISM Manufacturing Index hitting a 28 month high of 55.7 in August.
The improvement in European data continued. The Ifo survey in Germany rose again in September, suggesting an acceleration in growth in the third quarter. This was echoed in eurozone wide data. In the UK, unemployment fell to 7.7% in the three months to July from 7.8% in the preceding period.
Having risen to 3%, the yield of the 10-year Treasury closed September at 2.61%, a fall of 17 basis points for the month. Gilts and bunds broadly reflected the Treasury market, with yields falling on the Fed’s decision to postpone tapering. Bunds were also boosted by political instability in Italy.
An expected exception
According to data from Merrill Lynch, Treasuries had a total return of 0.8%, compared to 0.7% for bunds and 0.8% for gilts, in local currency terms.
Italian government bonds underperformed other eurozone peripherals, returning -0.1%. Corporate bonds performed approximately in line with governments, with lower credit quality categories outperforming, helped by their higher yields.
Sterling investment grade corporates returned 0.9%, with BBB returning 1.1%. Financials outperformed, with subordinated bank debt among the strongest areas of the market.
With reduced expectations for US monetary tightening, the dollar was weak, falling 4.4% against sterling and 2.3% against the euro.
