European govt bonds softer on momentum from last week

European govt bonds softer on momentum from last week

	Published : Mon, 26 Mar 2007 09:43 By : Agencies Print this Story

LONDON (AFX) - European government bonds were somewhat softer this morning on downward momentum from last week and ahead of a slate of data which in coming days is expected to cement views of another euro zone rate hike.

Bonds last week, particularly among shorter-dated maturities, on robust US existing home sales which suggested the US economy remains strong, boosting the view that the Federal Reserve will not cut rates any time soon and that the European Central Bank will raise them once again in coming months.

'Bond markets ended last week on a significantly softer note as global markets seem to have settled after weeks of jitters surrounding sub-prime loans' in the US, said Orlando Green at Calyon.

'With risk aversion diminishing, fundamentals are now back on the radar,' which is why bonds weakened after the US data on Friday, he said.

The soft tone in bonds was kept in place by the French business confidence survey this morning, which rose more than expected to 109 in March from 107 in February.

'The results are surprising given that oil prices have rebounded, the euro has appreciated and uncertainty looms about upcoming election,' said Zaki Kada at Thomson's IFR Markets. 'Sentiment is now improving in France and this is certainly encouraging.'

Looking forward, US new home sales this afternoon will be scrutinized for confirmation that the US economy will have a soft landing. New home sales are seen rising to 995,000 units in February, after totaling 937,000 units in the prior month.

The US housing market is the focus of global investors at the moment due to fears that ongoing weakness in the sub-prime mortgage market may spread to the main mortgage sector and the wider economy as a whole.

In the euro zone, eyes will be on a string of data this week, starting with the German Ifo business survey due tomorrow, and later this week on GDP data, labour market figures, consumer confidence and inflation and money supply data.

In the UK, gilts were also softer, tracking the wider markets due to a lack of domestic newsflow. Final GDP figures and Nationwide housing market data on Wednesday will be the next key drivers for gilts.

At Yield Change on

0915 GMT pct previous close

June euribor future (Liffe) 95.93 dn 0.005

GERMANY

June bund future (Eurex) 115.49 dn 0.07

4.00 pct July 2016 govt bond 100.05 3.99 dn 0.01

FRANCE

3.25 pct April 2016 govt bond 94.18 4.03 dn 0.02

June gilt future 108.37 dn 0.09

4.00 pct Sep 2016 govt bond 93.19 4.91 dn 0.08

June short sterling future 94.26 unchanged

September short sterling future 94.23 dn 0.01

carlo.piovano@thomson.com

cp/cp/wj

The copying, republication or redistribution of AFX News Content, including by framing or similar means, is expressly prohibited without the prior written consent of AFX News.