Bonds

Thursday May 15, 04:28 PM
European bonds track Treasuries off lows following weak U.S. data

| | |

LONDON (Thomson Financial) - European bonds came off lows, tracking the slightly better performance of their U.S. counterparts, following a raft of weak data from the world's largest economy.

Bonds pared back some of their losses

after initial jobless claims data in the world's largest economy showed a bigger-than-expected rise of 6,000 to 371,000 in the week to May 10, above expectations for a rise to 370,000.

Further bad news came in the form of the New York Federal Reserve Bank's Empire State Manufacturing Index, which fell to -3.23 this month from 0.63 in April, missing expectations for an unchanged reading.

'Bonds traded higher on the weaker-than-expected Empire State and simultaneously released rise in initial claims for unemployment insurance,' said Mike Carey, North America chief economist at Calyon.

In addition, industrial production fell by more than expected, while the Treasury's TIC data for March showed monthly net purchases of U.S. securities by overseas investors were at -$48.2 billion, the lowest level since August when the credit crunch started.

A better-than-expected improvement in the Philadelphia Fed survey of manufacturing conditions for May -- to -15.6 from -24.9 in April -- made little impact on markets as it still remains in negative territory.

Bonds in the euro zone remain lower though due to the stronger fundamentals in the area. Euro zone GDP rose by a provisional 0.7 percent in the first quarter from the fourth quarter due to strong GDP readings from France and Germany, beating expectations for a 0.5 percent rise.

Inflation also remains well above the European Central Bank's target of below but close to 2.0 percent, with the euro zone's harmonised index of consumer prices rising a final 3.3 percent year-on-year in April.

In the United Kingdom, gilts almost entirely erased earlier losses to outperform their European counterparts, following a strong response to this morning's gilt auction.

'There's an impressive amount of UK outperformance being seen today with the bulk of this following the conclusion of this morning's successful 10-year UK auction,' said David Corbell, an analyst at Thomson IFR Markets.

Gilts had been under severe pressure earlier as market players scaled back their expectations for interest rate cuts this year due to concerns over rising price pressures.

The concerns arose after data on Tuesday showed a jump in the annual CPI (NYSE: CPY - news) rate for April to 3.0 percent, while the Inflation Report projected this could rise still further to near 4 percent by autumn.

At Yield Change on

1507 GMT pct previous close

June euribor future (Liffe) 95.15 dn 0.01

Sept euribor future (Liffe) 95.23 dn 0.03

GERMANY

June bund future (Eurex) 113.21 dn 0.51

4.00 pct Jan 2018 govt bond 98.23 4.22 dn 0.39

FRANCE

4.25 pct Oct 2017 govt bond 96.66 4.42 dn 0.29

ITALY

4.50 pct Feb 2018 govt bond 99.21 4.65 dn 0.22

June gilt future 107.11 dn 0.24