Wednesday May 14, 10:36 AM
European govt bonds sharply lower as inflation worries dominate
LONDON (Thomson Financial) - European government bonds were sharply lower, with the front end suffering deep falls, as concerns about rising inflation dominated.
With oil prices well above $125 and showing no signs of abating and along with higher food costs, the European Central Bank's hands are tied. The prospect of lower interest rates still looks very distant.
Shorter dated maturities took the brunt of falls.
'Near term, the tone should remain slightly negative, as the market remains exposed to high inflation numbers. This will weigh at the short end of the curve, unless stock markets deteriorate,' said analysts at BNP Paribas (Paris: FR0000131104 - news) .
Indeed, share prices started the day higher, putting yet more pressure on bond prices.
The day's European data came in mixed. On the inflation front data from France and Italy pulled in different directions. French consumer price index rose 0.3 percent month-on-month in April for a 3.0 percent year-on-year increase -- a marked slowdown from gains of 0.8 percent and 3.2 percent respectively in March. In Italy, inflation was revised up to show a monthly rise of 0.2 percent in April from 0.1 percent previously.
Later attention turns to the United States where CPI (NYSE: CPY - news) inflation is expected to have increased 0.3 percent in April, the same rate as in the previous month.
Over in the United Kingdom, gilts continued to be weighed down by Tuesday's news that headline inflation hit 3.0 percent in April.
Markets remain focused on inflationary concerns amid slowing growth ahead of Wednesday's release of the BoE's quarterly Inflation Report, which will reveal its latest outlook for economic growth and inflation.
So far on Wednesday, a weak UK labour market report managed to lift gilts only at the margins.
The Office for National Statistics said the claimant count rose by 7,200 in April, confounding analysts' forecasts for an unchanged reading. To make matters worse the figure for March was revised up to show an increase of 3,600, compared with the previous estimate of a 1,200 decline. This means the claimant count has now risen for three consecutive months, the first time this has happened since April 2006 to June 2006, raising fears that a weak economy is starting to impact the jobs market.
At Yield Change on
0906 GMT pct previous close
June euribor future (Liffe) 95.16 dn 0.03
Sept euribor future (Liffe) 95.23 dn 0.07
GERMANY
June bund future (Eurex) 113.68 dn 0.67
4.00 pct Jan 2018 govt bond 98.63 4.17 dn 0.61
FRANCE
4.25 pct Oct 2017 govt bond 96.94 4.38 dn 0.64
ITALY
4.50 pct Feb 2018 govt bond 99.53 4.61 dn 0.47
UK
June gilt future 107.48 dn 0.70
5.00 pct March 2018 govt bond 101.51 4.80 dn 0.76
June short sterling future 94.21 dn 0.03
Sept short sterling future 94.31 dn 0.04
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