US Treasuries rose last week, pushing down 10-year note yields; the most since February as investors went for relatively safe government debt on the rising concerns that sub-prime loss will worsen. Meanwhile, yields on two-year notes, more sensitive to monetary policy than longer-term securities, touched the lowest level of 2.62 percent in three weeks. The Fed decided to leave its benchmark rate at 2 percent in the meeting held last week and specified that inflation was a greater concern than growth. As per data released last week, confidence among US consumers fell in June to 56.4, which is the lowest point in 28 years, due to record-high gasoline and rising unemployment.

On the credit news side, Moody’s placed the Aa3 ratings of Morgan Stanley on review of downgrade with the most likely outcome being a one-notch downgrade to A1.

Australian government debts rose over the week. Markets expect that the Australia’s central bank will leave its benchmark interest rate at a 12-year high of 7.25 percent to cool the fastest inflation in almost two decades. Surging fuel, food and housing costs pushed Australia’s annual core inflation to 4.4 percent in the first quarter, the highest rate in almost 17 years while the target is between 2 percent to 3 percent on average. Employment fell in May for the first time in 18 months, ending the longest run of monthly job gains since 1978. Consumer confidence dropped in June and business remained pessimistic for a fifth consecutive month. All these indicators are showing the economy is slowing down.

European government notes posted the biggest weekly advance in four months as a result of surging oil prices and renewed concern over the credit market. The gains pushed the yield on the ten-year note to 4.51 percent. Policy makers are still dealing with the inflation problem.  Consumer prices in the 15 nation euro-region rose 3.7 percent in May, from a year ago, the fastest pace in 16 years. The market is expecting the European Central Bank to raise borrowing costs this week by 0.25 percent.

In Germany, retail sales slumped in June as surging inflation eroded the household spending power. In Spain, the delinquencies on home loans rose to the highest in six years as economic slowdown triggers job losses.

Moody’s lowered the ratings of Fortis Bank to Aa3 from Aa2, and S&P also put Fortis’s debt rating on “credit watch with negative implication”.

In the UK, government bonds advanced over the week, pushing the yields of two-year notes down by the most since March. The 10 basis point spread between the two-year and 10-year caused the yield curve to invert in the month. Four Bank of England officials said last week they considered a hike on the key rates because of inflation concerns.

Moody’s last week downgraded Royal Bank of Scotland’s senior debt rating from Aa1 to Aa2 with stable outlook. This reflects the higher volatility in RBS’s earnings from its investment banking activities as well as the greater risk of impairments in the UK.

EM debt ended the week wider as more negative news related to global financial companies weighted on investors’ confidence. The JPM EMBI+ spread index closed at T+296 bps on Friday.

In Brazil, yields on government bonds rose as inflation accelerated this month to the fastest pace in five years, adding speculation the central bank will keep raising borrowing costs.

In Mexico, the peso-denominated bonds fell, pushing yields on the benchmark bond to a two-year high, as losses in global stocks reduced investor demand for high yielding assets in emerging markets.

South African government bonds also declined as market believes accelerating inflation will force policy markers to raise interest rates, sapping demand for fixed-payment securities.

In Asia, yields of Indonesian government bonds gained on speculation the central bank will raise interest rates again on 3 July to curb inflation. Philippine government bonds fell as well due to high inflation and lower forecasted economic growth to 5.2 percent for the year from 5.8 percent.