By Kirsten Donovan
LONDON, May 14 (Reuters) - Euro zone government bond and interest rate futures fell further on Wednesday as growing fears of global inflation pervaded fixed income markets and eroded rate cut expectations.
A run of stronger-than-expected inflation data from the UK this week has sent jitters through markets, although Bunds pared losses on Wednesday after data showed U.S. consumer price inflation grew less than expected in April [ID:nN14481285].
Euro zone interest rate futures began to price in a slim possibility of an European Central Bank rate hike, while short-dated euro zone swap rates also came under pressure.
"Some very bond unfriendly data is intensifying upward pressure at the short-end of the euro swap curve. In particular ...inflation data in the UK has put investor nerves on edge in all developed economies and rate expectations have spiked higher," said ICAP economist Don Smith.
At 1524 GMT June Bund futures <FGBLM8> were 65 ticks lower at 113.70, taking their loss this week to 1.3 points. Two-year bond yields <EU2YT=RR> were 9.2 basis points higher at 3.914 percent, while 10-year yields <EU10YT=RR> were 7.1 basis points higher at 4.165 percent.
Euribor interest rate futures <0#FEI:> were up to 13 ticks lower across the 2009 strip.
BNP Paribas strategists Alessandro Tentori meanwhile said Eonia futures were pricing in a between 5 and 10 percent chance of a 25 basis point ECB rate hike by September, while ICAP calculated a 20 percent chance of a hike by October.
The central bank has kept its key rate on hold at 4 percent through the credit crunch in an attempt to contain inflationary pressures.
A Reuters' poll showed the Bank of England will hold off cutting rates from 5.0 percent until the third quarter as it battles soaring inflation [ID:nL14799522].
The interbank cost of borrowing three month funds in dollar, sterling and euro rose on Wednesday, with spreads over secured lending rates widening again as markets trimmed expectations for interest rate cuts [ID:nL14605309] .
Three-month dollar Libor <USD3MFSR=> rose for the first time since April 21, up 4.5 basis points at 2.72000 percent, with OIS dollar spreads pushing back above 70 basis points.
"It's a rate expectation story today. There was a lot of inflation talk out of the U.S. yesterday which might indicate the Fed may not lower rates soon, although the market is probably way ahead of itself in terms of interest rates being raised," said a money markets trader.
Three-month sterling Libor rates rose for the first time since the end of March with the Libor/OIS sterling spread widening over two basis points.
Two-year swap rates <EURAB6E2Y=> were last at 4.61 percent, from 4.43 percent at the start of the week. 10-year rates <EURAB6E10Y=> were 4.59 from 4.44 percent, leaving the curve slightly inverted.
The 10-year swap spread widened to 42.2 basis points.
In supply, Italy sold 6 billion euros of five- and 30-year government bonds on Wednesday which analysts said met with a surprisingly strong bid premium for the long-dated issue [ID:nL14787369]. ((Reporting by Kirsten Donovan; kirsten.donovan.reuters.com@reuters.net, +44 20 7542 8675))
Keywords: MARKETS BONDS EURO
--------------MARKET SNAPSHOT AT 1531 GMT ------------------
Futures continuous contract basis
FUTURES CASH YIELD
THREE MONTH EURO 95.170 (-0.020) 3.982 (-0.007)
TWO-YEAR SCHATZ 103.56 (-0.15) 3.902 (+0.080)
10-YEAR BUND 113.71 (-0.64) 4.166 (+0.072)
30-YEAR BUND 4.670 (+0.027)
Current levels versus prior European close
-----------------------------------------------------------
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LONDON, May 14 (Reuters) - Bund futures pared losses on Wednesday after U.S. consumer prices grew less than expected in April.
At 1245 GMT, June Bund futures <FGBLM8> were 53 ticks lower on the day at 113.81, compared with around 113.67 shortly before the data was released.
Two-year yields <EU2YT=RR> were 6.8 basis points higher at 3.891 percent, while 10-year yields <EU10YT=RR> were 5.8 basis points higher at 4.152 percent.
U.S. consumer prices rose a smaller-than-expected 0.2 percent in April as energy prices held steady, a Labor Department report said.
The rise in April prices was less than the 0.3 percent gain Wall Street analysts polled by Reuters were expecting after a 0.3 percent advance in March. Core prices, which exclude volatile food and energy, were up just 0.1 percent, half the increase analysts had forecast. ((Reporting by Kirsten Donovan; kirsten.donovan.reuters.com@reuters.net, +44 20 7542 8675))
LONDON, May 14 (Reuters) - Euro zone government bond futures extended losses to a one-week low on Wednesday, in tandem with falling U.S. Treasuries and weighed down by impending Italian debt supply.
The June Bund future <FGBLc1> was down 68 ticks on the day at 113.67, marking a session low of 113.64 and below the lowest level marked on May 8.
The two-year Schatz yield <EU2YT=RR> was 7.4 basis points higher at 3.89 percent, as the 2-30 year yield curve flattened. (Reporting by George Matlock; editing by Stephen Nisbet) ((george.matlock@reuters.com; Reuters Messaging: george.matlock.reuters.com@reuters.net; +44 20 7542 2508))
Keywords: MARKETS BONDS EURO
By George Matlock
LONDON, May 14 (Reuters) - Euro zone government bonds were lower on Wednesday after U.S. Treasuries declined in Asia, Italian debt supply weighed and the focus was on inflation in Europe.
U.S. Treasuries extended losses from the previous New York session's declines which had been triggered by solid retail sales data. The data helped underline growing expectations the Federal Reserve will take a pause from cutting interest rates.
Attention is expected to turn to inflation numbers, with final April consumer prices data in France in line with expectations, but Italian CPI data due at 0800 GMT.
The Bank of England is expected to raise its inflation profile compared with February and say the risks lie to the upside when it publishes its quarterly inflation report at 0930 GMT.
"Inflation is the main draw today as well as any chance the euro Libor fixings before midday go higher and result in a flattening of the debt yield curve at the short-end," said a trader in London.
"The U.S. consumer prices this afternoon (at 1230 GMT) are another factor the market will be watching," he added.
At 0738 GMT, the June Bund future <FGBLc1> was down 38 ticks at 1134.97 versus the settlement close of 114.35.
On Tuesday, Bund futures were already downbeat, registering an official close a full point below their intraday high of 115.21.
The interest rate-sensitive two-year Schatz yield <EU2YT=RR> was up 3.3 basis points at 3.855 percent. Bond prices move inversely to yields.
The 10-year Bund yield <EU10YT=RR> was up 4.3 basis points at 4.137 percent.
European bourses were firmer on Wednesday <.FTEU3>, putting some pressure on debt issues.
Italy will issue up to 4 billion euros of new five-year BTPs and reopened 2 billion euros of 30-year BTPs. Subscriptions close at 0900 GMT.
"On the grey market, the new five-year BTP trades at swaps minus 5 basis points, fairly cheap on the Italian curve, especially versus the BTP Feb 2013 and the BTP Aug 2013, which are the most (structurally) expensive versus swap on the BTP curve," said Luca Cazzulani, a bond strategist at Unicredit.
"Looking at the 30-year area, the Treasury has issued very little at the 30-year maturity: 2.2 billion euros compared to an average in 2007 and 2006 of 5 billion euros. This should favour a good demand at the auction.
"The 10/30-year spread (just over 60 basis points) is pretty wide and close to the highest since 2006. This level is mostly related to credit risk premium, a good opportunity that can be seized." ((Reporting by George Matlock; george.matlock@reuters.com; Reuters Messaging: george.matlock.reuters.com@reuters.net; +44 20 7542 2508))
Keywords: MARKETS BONDS EURO
LONDON, May 14 (Reuters) - Euro zone government bond futures opened nearly a quarter-point lower on Wednesday after U.S. Treasuries declined in Asia, and weighed down ahead of 6 billion euros-worth of Italian debt supply this session.
U.S. Treasuries extended losses from the previous New York session's declines which had been triggered by solid retail sales data. The data helped underline growing expectations the the Federal Reserve will take a pause from cutting interest rates.
At 0604 GMT, the June Bund future <FGBLc1> was down 22 ticks at 114.13 versus the settlement close of 114.35.
On Tuesday, Bund futures were already downbeat, registering an official close a full point below their intraday high of 115.21.
The interest rate-sensitive two-year Schatz yield <EU2YT=RR> was up 3.9 basis points at 3.86 percent. Bond prices move inversely to yields.
European bourses are expected to open mixed on Wednesday <.FTEU3>, offering little direction to debt issues.
Attention is expected to turn to inflation numbers, with final April consumer prices data in France and Italy due at 0640 GMT and 0800 GMT respectively.
The Bank of England is expected to raise its inflation profile compared with February and say the risks lie to the upside when it publishes its quarterly inflation report at 0930 GMT.
Italy will issue up to 4 billion euros of new five-year BTPs and reopened 2 billion euros of 30-year BTPs. Subscriptions close at 0900 GMT.
((Reporting by George Matlock; george.matlock@reuters.com; Reuters Messaging: george.matlock.reuters.com@reuters.net; +44 20 7542 2508; editing by Chris Pizzey))
Keywords: MARKETS BONDS EURO
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