European government bonds lower in thin holiday trading

European government bonds lower in thin holiday trading

	Published : Thu, 17 May 2007 10:41 By : Agencies Print this Story

LONDON (Thomson Financial) - European government bonds were somewhat softer and were expected to remain largely range-bound owing to a public holiday across Europe, with several markets closed, dealers said.

Michael Cartine at IFR Markets said the thin trading could result in exaggerated market reactions to US data later today, namely the Philadelphia Fed survey of manufacturing activity.

He noted that because of the holiday there will be no auctions, and that recent economic data from Japan should keep bonds supported.

The Bank of Japan left interest rates unchanged overnight and GDP came in below expectations, giving Japanese bonds a strong bounce. This should support carry trades -- when investors borrow in countries with low interest rates like Japan and invest in higher yielding economies, such as some European countries -- which may see some bids for long-dated European bonds.

Gains in the shorter-dated maturities, however, are expected to be limited as sentiment remains clearly bond-bearish.

BNP Paribas strategists pointed out that recent comments from the European Central Bank suggest little concern that higher interest rates will hurt growth, and after robust GDP data this week, a hike in June is fully expected.

'Moderate upward pressures on front end yields can develop further near term,' said the BNP Paribas strategists.

Today's Philadelphia Fed's survey of manufacturing activity is expected to show a jump to 4.0 in May from 0.2 in April, according to economists.

Elsewhere, UK gilts were also lower, with the short-end pressured by the Bank of England's inflation report yesterday. In the report, the bank signalled that rates would have to rise at least once more in coming months, as expected by markets, for inflation to return to target within two years.

At Yield Change on

0930 BST pct previous close

June euribor future (Liffe) 95.84 dn 0.01

Sept euribor future (Liffe) 95.65 dn 0.01

GERMANY

June bund future (Eurex) 112.92 dn 0.05

3.75 pct Jan 2017 govt bond 95.66 4.31 dn 0.05

FRANCE

3.75 pct Apr 2017 govt bond 95.24 4.35 dn 0.01

ITALY

4.00 pct Feb 2017 govt bond 96.41 4.51 dn 0.03

June gilt future 106.39 dn 0.12

4.00 pct Sept 2016 govt bond 91.65 5.14 dn 0.11

June short sterling future 94.18 dn 0.01

September short sterling future 94.03 dn 0.03

carlo.piovano@thomson.com

cp/vs/slj

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