European govt bonds down though lifted from day-lows by soft US data

European govt bonds down though lifted from day-lows by soft US data

	Published : Fri, 25 May 2007 16:32 By : Agencies Print this Story

LONDON (Thomson Financial) - European government bonds were lower in afternoon trade, although stronger-than-expected US home sales data lifted them from day lows.

US sales of existing homes fell 2.6 pct to a 5.99 mln annual rate in April compared to expectations for a more moderate fall to 6.115 mln units from March's 6.120 mln.

The data contrasts sharply with yesterday's strong new home sales and will fuel fears about a slowing US real estate sector and its implications for the wider economy.

The figures gave bonds a small boost but they still remain well below yesterday's closing prices, pushed down by strong German economic data this morning.

'The overall mood is very bearish going to the next European Central Bank rate setting meeting,' said Mark Miller, at HBOS.

'German data has been coming in pretty strong recently, keeping them lower,' he added.

Earlier this morning the GfK market research institute said its consumer climate index for Germany is forecast to rise to 7.3 points in June from a revised 5.7 points in May. Analysts had only expected an increase to 6.5.

The figures further fuelled expectations that the European Central Bank will raise borrowing costs after next month's widely-tipped quarter point move to 4.00 pct.

The GfK numbers offset softer-than-expected French consumer spending which fell 0.3 pct in April from March, compared to expectations for a 0.2 pct rise.

'If the French consumer does stumble through the second quarter of 2007, German spending should counter any adverse impact on euro zone activity as a whole,' said Stuart Bennett, senior economist at Calyon.

Meanwhile in the UK gilts were steady with the breakdown of UK GDP figures having little effect.

Figures released this morning confirmed the initial estimate that GDP rose 0.7 pct in the first quarter of the year from the end of 2006, although the year-on-year rate was revised up slightly to 2.9 pct from 2.8.

Analysts said the figures confirmed expectations already-priced in expectations that UK interest rates will rise a quarter point to 5.75 pct in coming months.

'There is nothing in the GDP data to change our view that the Bank of England will lift interest rates further within the next couple of months,' said Howard Archer at Global Insight.

At Yield Change on

1558 BST pct previous close

June euribor future (Liffe) 95.840 unchanged

Sept euribor future (Liffe) 95.645 dn 0.02

GERMANY

June bund future (Eurex) 112.33 dn 0.18

3.75 pct Jan 2017 govt bond 95.16 4.37 dn 0.14

FRANCE

3.75 pct Apr 2017 govt bond 94.69 4.42 dn 0.22

ITALY

4.00 pct Feb 2017 govt bond 95.90 4.57 dn 0.10

June gilt future 105.69 dn 0.20

4.00 pct Sept 2016 govt bond 91.06 5.22 dn 0.12

June short sterling future 94.14 unchanged

September short sterling future 93.95 unchanged

rachel.armstrong@thomson.com

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