Friday April 18, 05:05 PM
European government bonds decline further as risk appetite picks up
LONDON (Thomson Financial) - European government bonds continued to fall, pressured by the unwinding of safe haven flows as risk appetite picked up and by concerns over Libor interbank lending fixings.
Equity markets -- a gauge of
risk appetite -- jumped higher in relief that there were no nasty surprises revealed in U.S. financial services group Citigroup (ASFZ.PK - news) 's first quarter earnings earlier in the day.
'We've cleared the major hurdles in terms of the financial earnings season; markets are relieved that financial earnings haven't been as bad as some feared and therefore market confidence is higher than it has been for a while,' said Orlando Green, fixed income strategist at Calyon.
As a result, investors have dumped safe haven assets like fixed income assets in favour of riskier assets like equities.
Green said bonds, particularly those with shorter-dated maturities, have also come under pressure from fears that there may be discrepancies in the fixings of Libor interbank rates -- the rate at which banks lend to each other.
Newspaper reports on Thursday suggested that the British Bankers Association had brought forward its annual review of the way it calculates key London Interbank Offered Rates amid mounting concerns over the credibility of the information supplied to them by banks, which it uses to calculate the rate.
However, the BBA said it actually brought the review forward because of the increased level of volatility in the market at the moment and denied there are any concerns about the credibility of any of the data it receives.
In the United Kingdom, gilts were underperforming their European counterparts, also hurt by rising risk appetite, but driven mostly by the markets' concerns over Libor fixings.
'Gilts have underperformed and that's down to the fact that there's a lot of pressure now in short rates market,' said Green.
At Yield Change on
1542 GMT pct previous close
June euribor future (Liffe) 95.19 dn 0.07
Sept euribor future (Liffe) 95.36 dn 0.10
GERMANY
June bund future (Eurex) 113.95 dn 0.53
4.00 pct Jan 2018 govt bond 98.94 4.13 dn 0.45
FRANCE
4.25 pct Oct 2017 govt bond 97.06 4.37 dn 0.39
ITALY
4.50 pct Feb 2018 govt bond 99.61 4.60 dn 0.09
UK
June gilt future 108.20 dn 0.65
5.00 pct March 2018 govt bond 102.17 4.72 dn 0.61
June short sterling future 94.36 dn 0.11
Sept short sterling future 94.54 dn 0.17
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