European government bonds lower as ECB's Trichet signals rate rise in June

European government bonds lower as ECB's Trichet signals rate rise in June

	Published : Thu, 12 Apr 2007 17:27 By : Agencies Print this Story

LONDON (Thomson Financial) - European government bonds were lower after the European Central Bank president Jean-Claude Trichet signalled in this afternoon's press conference that euro zone interest rates will rise again soon, most likely in June.

The ECB left euro zone interest rates unchanged at 3.75 pct today, as expected. Trichet subsequently said the ECB will continue to monitor euro zone inflation risks have ry closely' and reiterated that monetary policy is 'on the accommodative side'.

The comments suggest that rates are likely to rise to 4.0 pct in June, though his failure to employ the key word 'vigilance' -- a code word generally signalling a rate hike in the following meeting -- makes an increase in May unlikely.

Bonds initially edged up after the news due to the fact that the market had been speculating in the run-up to today's meeting that the ECB may opt for an early hike. Any gains were short-lived, however, and with interest rates set to rise again bonds soon renewed their downward trend, analysts said.

'It was much the same story with the ECB press conference where Trichet

omitted the 'vigilance' word but with that merely indicating June rather than

May as timing for the next hike there was only a fleeting bid (to bonds) on the back of this,' said David Corbell at Thomson IFR Markets.

The broad negative sentiment on euro zone bonds shows no sign of abating, he said, with German 10-year yields breaking above the 4.15 pct level, leaving 4.19 pct in focus, he said.

'Given the bearish price action, bounces clearly remain for selling and it

has been another session of European underperformance today,' he said.

Over in the UK meanwhile, gilts were also lower, tracking their European counterparts, with worse-than-expected UK trade data and a weak survey on UK manufacturing and services sector activity from the BCC today having little impact.

Earlier today, the UK's Debt Management Office announced its auction of 1.1 bln stg in index-linked gilts maturing in 2017 received reasonable demand, with the bid-to-cover ratio at 2.07.

At Yield Change on

1659 BST pct previous close

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

GERMANY

June bund future (Eurex) 113.88 dn 0.37

4.00 pct Apr 2016 govt bond 98.66 4.18 dn 0.32

FRANCE

3.25 pct April 2016 govt bond 92.90 4.21 dn 0.30

June gilt future N/A N/A

4.00 pct Sep 2016 govt bond 92.17 5.06 dn 0.26

June short sterling future N/A N/A

September short sterling future N/A N/A

jessica.mortimer@thomson.com

jkm/ro

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