European govt bonds falter on US home sales data, but end in positive territory

European govt bonds falter on US home sales data, but end in positive territory

	Published : Thu, 24 May 2007 16:34 By : Agencies Print this Story

LONDON (Thomson Financial) - European government bonds fell after US home sales data came in much stronger than expected, before recovering to end the day slightly higher.

US sales of new homes rose 16.2 pct last month to an annual rate of 981,000 units, way above expectations for an 861,000 rate, the Commerce Department reported today.

The news prompted longer-dated European government bonds to temporarily lose all of the gains they had made earlier in the day. They recovered to end slightly higher on the session, but still off day lows. German and UK 10-year bonds showed a particularly violent reaction to the home sales data.

'Ten-year bonds showed a sharp reaction, in correlation with US treasuries, but they have now pulled back,' said Harvinder Sian, fixed-income strategist at ABN Amro.

Sian also suggested that the data, while strong, may not be entirely trusted by the market.

'Home sales showed a very large increase but it doesn't chime with noises coming from homebuilders, so there might be some suspicion there,' he said.

Earlier, bonds showed strength as the market looked to correct some of its recent losses, which have stemmed from strong European economic data and firm expectations that interest rates will rise again soon.

The markets showed little reaction on the whole to a raft of business confidence indicators, including the German Ifo and UK CBI surveys, which seemed to confirm the view that the Bank of England and the European Central Bank will continue on a tightening path.

Longer-term, however, the continued firm confidence shown by the likes of the German Ifo and ZEW surveys this week should be negative for bonds, said David Brown at Bear Stearns.

'The upturn in growth prospects should continue to fuel the faster flow of asset allocation funds into higher yielding stocks away from low yielding government debt markets,' he said.

Data out tomorrow include revised UK first-quarter GDP figures and a further German confidence indicator, the GfK index.

At Yield Change on

1549 BST pct previous close

June euribor future (Liffe) 95.840 unchanged

Sept euribor future (Liffe) 95.665 up 0.030

GERMANY

June bund future (Eurex) 112.46 up 0.03

3.75 pct Jan 2017 govt bond 95.27 4.36 up 0.04

FRANCE

3.75 pct Apr 2017 govt bond 94.83 4.40 up 0.05

ITALY

4.00 pct Feb 2017 govt bond 95.94 4.57 up 0.03

June gilt future 105.82 up 0.06

4.00 pct Sept 2016 govt bond 91.15 5.20 up 0.06

June short sterling future 94.13 unchanged

September short sterling future 93.96 up 0.01

alex.brittain@thomson.com

abr/jfr

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