Bonds

LONDON (ShareCast) - Gilts fell back despite some unsavoury economic data, giving up gains yesterday that came after a reverse auction which saw the Bank of England buying back about £3.5bn worth of government debt.

UK gross domestic product fell by more than expected in the first quarter of 2009 as tough economic conditions continued despite recent talk of green shoots of recovery.

GDP fell by 2.4% from the previous quarter, which is a downward revision from the previous estimate of a 1.9% fall. It is the fastest contraction in the UK economy since 1958 and means GDP is now 4.9% lower than in the first quarter of 2008.

Such data would normally be expected to make bonds more attractive as investors seek safe assets, but gilts were on the back foot after yesterday's gains.

The yield on a 10-year gilt climbed eight basis points to 3.7%.

In the US, treasuries were also lower after house prices fell less than expected.

Home prices fell 18.1% year-on-year in April and by 0.6% from March, compared with a 2.2% decline in the prior month, according to the S&P/Case-Shiller Home Price index.

The yield on a 10-year note rose seven basis points to 3.54%.

Mainland European bonds also fell victim to improved sentiment on the back of better-than-feared economic data.

Elsewhere, the jobless rate in Germany rose to 8.3% from 8.2% in May as the number of people out of work increased a seasonally adjusted 31,000 to 3.5m.

The yield on Germany's benchmark 10-year bund fell three basis points to 3.4%.