European government bonds climb ever higher on soft corporate earnings

European government bonds climb ever higher on soft corporate earnings

	Published : Thu, 18 Oct 2007 16:02 By : Agencies Print this Story

LONDON (Thomson Financial) - European government bonds jumped higher, supported by poor corporate earnings reports and an ever-deteriorating US economic outlook.

Results from Bank of America today showed a 32 pct drop in net income during the third quarter, which it attributed to this summer's financial market turmoil. These followed a poor set of results from Citigroup on Monday, heightening concern about the impact of the credit crunch on the world's largest financial institutions.

'Earnings have been on the soft side and this is proving to be a positive for bonds', said Orlando Green, fixed income strategist at Calyon.

'As well as the effect that this has on the equity market it's also a negative for the economic growth outlook going forward,' he added.

Meanwhile the weekly US jobless claim figures out this afternoon showed a 28,000 increase in weekly job claims to 337,000 last week - the largest one-week rise since February. This indicates the labour market is starting to soften, raising the chances that the Federal Reserve will cut interest rates again in the coming months.

Later today sees the release of the the Philadelphia Fed survey, which is expected to show a retreat in the index for October to 7.5 from 10.9.

Meanwhile news of geopolitical tensions between Turkey and Iraq also helped to lower risk appetite for equities in favour of bonds.

'Renewed concerns on credit and geopolitical risks were behind the recent rally,' said analysts at BNP Paribas.

In the UK, gilts tracked their US and European counterparts despite strong retail sales figures out this morning.

The Office for National Statistics reported that retail sales in September rose 6.3 pct from a year ago, the highest rise in three years and above analyst expectations for a 5.6 pct increase, although this was underpinned by a sharp fall in shop prices.

'Yet again, it is a resilient UK consumer sector that emerges today, even if in a context of falling prices,' said Audrey Childe-Freeman at CIBC World Markets.

At Yield Change on

1600 BST pct previous close

Dec euribor future (Liffe) 95.48 dn 0.02

March euribor future 95.57 unchanged

GERMANY

Dec bund future (Eurex) 112.58 up 0.52

4.25 pct July 2017 govt bond 99.35 4.32 up 0.47

FRANCE

3.75 pct Apr 2017 govt bond 94.92 4.41 up 0.37

ITALY

4.00 pct Feb 2017 govt bond 96.02 4.58 up 0.32

Dec gilt future 107.00 up 0.41

4.00 pct Sept 2016 govt bond 93.08 4.97 up 0.40

Dec short sterling future 93.91 up 0.02

Mar short sterling future 94.19 up 0.04

rachel.armstrong@thomson.com

rar/jlc

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