Sovereign bonds continue strong sell-off

Government bond markets are continuing to sell off strongly this morning as investors absorb the extra $1trn of debt added to the US balance sheet by the extension of its tax cuts.

At a time when European countries are undertaking widespread austerity measures, US authorities extended the Bush-era tax cuts and continued a number of other stimulus measures.

While equity markets rallied on the news, treasuries sank heavily yesterday and are sharply lower again today. At 8:40am, the benchmark 10-year treasury yield is 8bp higher to 3.21%. The short end and long end of the curve are also lower.

UK gilt yields are also higher, up 6bp to 3.51%. German bunds have also sold off, with the European safe haven bond yield jumping over 3%, up 7bp this morning. Japanese 10-year bond yields are also up 7bp to 1.25%.

Henderson head of retail fixed income John Pattullo remains short 3yr gilts.

"The sell off does not impact people like me as much, because we have put a portfolio together which is largely unaffected by duration," Pattullo says.

"We still remain concerned about investment grade credit, which in many cases act like a gilt proxy."