European govt bonds remain lower after strong German data, eyes on US data

European govt bonds remain lower after strong German data, eyes on US data

	Published : Thu, 05 Apr 2007 16:57 By : Agencies Print this Story

LONDON (AFX) - European government bonds remained lower after some strong German data supported views that interest rates will rise further in coming months.

Bonds have been weighed by euro zone economic data, which has consistently surprised to the upside over the past few weeks. Today's German industrial production likewise was strong, rising 0.9 pct in February from January and going against an analyst consensus for a 1.0 pct decline.

'The German economy continues to show vibrant growth prospects,' despite the VAT hike in January, said David Brown at Bear Stearns.

'The ECB should be reassured looking at these numbers that the euro zone economy should be able to withstand higher rates ahead. The markets should be set up for the next ECB rate hike in June,' Brown said.

Investors are now looking to tomorrow's key US jobs numbers. The payrolls data for March are expected to show a 133,000 increase, compared with the 97,000 rise in the previous month. Expectations were cut slightly after the ADP forecast for the data yesterday came in at only 106,000 and after the ISM indicators this week showed employment would weaken.

Because many European financial markets will be closed tomorrow for the long Easter holiday, trading is expected to be thin and illiquid.

In the UK, gilts outperformed the wider market after the Bank of England's decision to leave interest rates unchanged at 5.25 pct.

A minority of analysts thought the BoE might spring a surprise hike, as it did in January; the fact that it didn't gave a boost to gilts. Those gains were short-lived, however, as both the market and analysts still expect interest rates to go higher in coming months, leaving bonds looking vulnerable.

'It is hard to find much to be positive about in the longer term, dailies still point lower with little to suggest that the bear phase fo the last fortnight is coming to an end,' said Jim Dodgin at Thomson's IFR Markets.

At Yield Change on

1635 BST pct previous close

June euribor future (Liffe) N/A N/A

GERMANY

June bund future (Eurex) 114.67 dn 0.18

4.00 pct Apr 2016 govt bond 99.35 4.08 dn 0.18

FRANCE

3.25 pct April 2016 govt bond 93.54 4.12 dn 0.17

June gilt future N/A N/A

4.00 pct Sep 2016 govt bond 92.62 4.99 dn 0.01

June short sterling future N/A N/A

September short sterling future N/A N/A

carlo.piovano@thomson.com

cp/cp/ro

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