European government bonds lower ahead of ECB decision, press conference

European government bonds lower ahead of ECB decision, press conference

	Published : Thu, 12 Apr 2007 12:56 By : Agencies Print this Story

LONDON (Thomson Financial) - European government bonds were lower as market players awaited the

European Central Bank's interest rate decision and subsequent press conference this afternoon.

Though the ECB is fully expected to leave its key refi rate on hold at 3.75 pct, it is widely forecast to deliver a further quarter point rate rise soon, most likely in June but possibly as early as next month. ECB president Jean-Claude Trichet's press conference will therefore be closely scrutinised.

'Today the ECB is on centre stage. As usual, the rate decision should be a non-event, very much in contrast to the following press conference held by ECB president Trichet,' fixed income analysts at WestLB said.

WestLB expect the ECB to hike rates in June, but the risk that they opt for a move in May is 'much higher than a delay beyond June', they said.

'Trichet's wording to lean clearly on the hawkish side thus not leaving any doubt about rates being lifed again,' they said.

Meanwhile, slightly more hawkish minutes from the US Federal Open Market Committee last night also pressured bonds as the changes of an interest rate cut any time soon diminished further.

The minutes showed that inflation, rather than economic weakness, is the principal worry of Federal Reserve policymakers, and revealed that the FOMC even discussed the possibility that future hikes in interest rates might be needed to combat higher inflation.

'Downside risks to growth are developing but the Fed (and other monetary authorities) will be slow to cut as inflation remains uncomfortably high,' said Steve Pearson at HBOS.

Over in the UK meanwhile, gilts were also lower, tracking their European counterparts.

A weak survey released this morning from the British Chamber of Commerce had little impact on bonds as it did nothing to alter market expectations that the Bank of England will raise interest rates again next month.

The survey showed activity in both the manufacturing and services sectors softened over the first quarter and, crucially as far as UK rate-setters are concerned, prices fell significantly.

'While the BCC survey modestly dilutes the case for an imminent further tightening of monetary policy, we still think the Bank of England is more likely than not to raise interest rates by a further 25 basis points to 5.50 pct in May,' said Howard Archer at Global Insight.

At Yield Change on

1230 BST pct previous close

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

GERMANY

June bund future (Eurex) 114.24 dn 0.14

4.00 pct Apr 2016 govt bond 98.87 4.15 dn 0.11

FRANCE

3.25 pct April 2016 govt bond 93.10 4.18 dn 0.10

June gilt future N/A N/A

4.00 pct Sep 2016 govt bond 92.30 5.04 dn 0.13

June short sterling future N/A N/A

September short sterling future N/A N/A

jessica.mortimer@thomson.com

jkm/tc

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