Bonds

Thursday April 17, 04:39 PM
European government bonds lower on inflation concerns; UK gilts underperform

| | |

LONDON (Thomson Financial) - European government bonds were lower on concerns over rising inflationary pressures in the euro zone and tracking falls in U.S. Treasuries.

Inflation worries resurfaced on Wednesday after data unexpectedly

showed an upward revision to euro zone HICP inflation to a record 3.6 percent annually. These were highlighted again earlier on Thursday when European Central Bank governing council member Axel Weber said the persistence of high energy and food price inflation in the region is a cause for 'serious concern'.

David Corbell, fixed income analyst at Thomson IFR Markets said inflation woes, combined with the recent extra supply that has come onto the market, with issuance out of France, Italy and Germany, has weighed on bonds.

'All these things have served to weigh on the market, especially at the front end,' he said.

Meanwhile, European issues have also tracked falls in U.S. Treasuries as investors unwind flight-to-quality trades, Corbell added.

Bonds shrugged off further bad news on the U.S. economy Thursday, with the Philly Fed index of manufacturing activity in the Philadelphia region slumping to -24.9 in April from -17.4 the prior month, way below forecasts for a slight improvement to -15.0.

Over in the UK, gilts were sharply lower, underperforming their European counterparts as extra supply came onto the market.

The UK's Debt Management Office announced that its auction of 2.25 billion pounds in Treasury gilts maturing in 2042 was covered by bids 1.69 times.

At Yield Change on

1518 GMT pct previous close

June euribor future (Liffe) 95.26 up 0.01

Sept euribor future (Liffe) 95.46 dn 0.03

GERMANY

June bund future (Eurex) 114.47 dn 0.40

4.00 pct Jan 2018 govt bond 99.31 4.08 dn 0.42

FRANCE

4.25 pct Oct 2017 govt bond 97.45 4.32 dn 0.36

ITALY