Gilt yields rose during December, with ten-year yields rising from 3.2% to 3.4%, while ten-year yields rose by 0.1%, 0.2% and 0.5% in France, Germany and the US respectively. While concerns lingered that the Eurozone sovereign debt crisis could yet spread to impact directly on larger ‘peripheral’ economies such as Spain or Italy, investors have recently given less weight to the ‘safe haven’ status of ‘core’ European bonds. Given the recent upturn in US economic sentiment and further positive signs over the health of the leading European economies, rising energy costs have flagged the risk that inflation could impact on the returns from fixed income assets. UK economic data remained positive on the whole during the month, though third-quarter Gross Domestic Product was revised down to 0.7% from the previous estimate of 0.8%. Meanwhile there was good news from the manufacturing sector, with production and manufacturing Purchasing Managers’ Indices rising. Though interest rates were held at 0.5%, with the same three-way split in the voting by the Bank of England’s Monetary Policy Committee, concerns mounted over the near-term outlook for inflation. November’s consumer price index unexpectedly rose by 0.1%to a six-month high of 3.3%. Meanwhile, a surge in November’s Public Sector Borrowing figures continued to underline the poor state of UK public finances.