Credit market Analysis by Lloyds TSB

As green shoots wither, long-term interest rates could fall further from recent highs

As green shoots wither, long-term interest rates could fall further from recent highs

Long-term bond yields hit multi-month highs last month and yield curves steepened further, driven by hopes of ‘green shoots’ of economic recovery, rather than fears about inflation or government debt levels.

But concerns about the strength and sustainability of any economic recovery have pushed market rates lower. Bond yields could remain under pressure this year and in the first part of 2010, as rising unemployment and downward pressure on profits weigh on domestic demand and constrain inflation.

Beyond that, bond yields are likely to rise on signs of more sustained economic recovery and they could eventually rise very sharply, especially in debtor countries such as the UK, unless there are credible plans to reduce government debt in the medium term.

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