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EURO GOVT-Bunds catch safe-haven bid, peripherals sell-off

Reuters: [2008-05-09 17:47:00]

By Kirsten Donovan

LONDON, May 9 (Reuters) - Top-quality euro zone government bonds advanced on Friday as sagging share prices boosted the appeal of safe-haven Bunds and as markets weighed the previous day's comments from the European Central Bank.

European equities fell as banks and other financials dragged on the market, while Wall Street dropped as it reacted to the record loss posted by the world's number one insurer American International Group <AIG.N> after the closing bell on Thursday.

Crude oil's surge to a new peak above $125 a barrel also hit stocks, exacerbating fears about inflation and a deteriorating U.S. economy.

Bunds reaped the benefit of safe-haven flows and pushed ahead, with 10-year yields falling to their lowest in three weeks to below the key psychological 4 percent level, helped by some observers perceiving that the ECB had slightly softened its monetary policy stance after keeping rates steady at 4 percent on Thursday.

But peripheral debt, such as that issued by Italy sold off.

"The key flow today has been the ongoing selling of peripherals, especially Italy," said a trader.

"Peripheral spreads have had a good run recently but now stocks are looking a bit wobbly, credit spreads are widening and these bonds trade like a high risk asset nowadays."

At 1528 GMT, June Bund futures <FGBLM8> were 59 ticks higher at 115.12. Two-year cash yields <EU2YT=RR> were down 5 basis points at 3.663 percent, while 10-year yields <EU10YT=RR> were 7 basis points lower at 3.997 percent.

Italian 10-year spreads widened a further 4 basis points on Friday, with Greek 10-year spreads about 3.5 basis points wider.

Euribor contracts from December onwards outperformed the front-end of the 2008 strip which still indicates no chance of an interest rate cut from the ECB this year.

ECB President Jean-Claude Trichet said on Thursday that the bank's Governing Council was unanimous in its decision to leave rates on hold but did not rule out a future reappearance of the word "vigilance" -- a past harbinger of rate rises.

Bank of America said the key issues when thinking about the interest rate outlook are whether economic growth in the euro zone will continue to weaken in coming months, and how the exchange rate of the euro <EUR=> will respond.

Head of strategy Riccardo Barbieri says based on the past couple of weeks the currency could respond "relatively strongly" to an economic downturn and unless food and energy prices fell at the same time, the ECB may be forced to remain on hold.

"It is entirely conceivable that the ECB will remain on hold throughout the credit-market crisis, with money market and bank lending rates perhaps edging down in 2009 by virtue of a tightening in the Euribor/Eonia spread."

The ECB also said on Friday that euro zone banks are making it harder for companies and households to borrow money, clamping down on lending as the credit crisis bites [ID:nL09835231].

Since the global credit crisis hit last summer, banks have found it harder to obtain funds to lend to firms and consumers, and also become more cautious about who they lend to.

The interbank cost of borrowing three-month dollar funds fell at Friday's daily Libor fixing, while sterling spreads notably tightened after the Bank of England on Thursday left rates on hold [ID:nL09633122].

Meanwhile, 2-year swap rates <EURAB6E2Y=> fell to 4.421 from around 4.5 percent before the ECB rate decision, while 10-year rates <EURAB6E10Y=> were at 4.456 from 4.500 percent at Thursday's close.

The 10-year swap spread widened to 46 basis points. ((Reporting by Kirsten Donovan; kirsten.donovan.reuters.com@reuters.net, +44 20 7542 8675))

Keywords: MARKETS BONDS EURO

--------------MARKET SNAPSHOT AT 1536 GMT ------------------     
Futures continuous contract basis      
                   FUTURES          CASH YIELD   
THREE MONTH EURO 95.250 (-0.010)  3.966 (-0.003)  
TWO-YEAR SCHATZ  104.01 (+0.09)   3.669 (-0.046)  
10-YEAR BUND     115.15 (+0.62)   3.993 (-0.074)  
30-YEAR BUND                      4.504 (-0.041)  
 Current levels versus prior European close       
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EURO GOVT-Bunds advance as falling stocks fuel safety bid

Reuters: [2008-05-09 09:44:00]

(Adds analyst comments and background)

By Emelia Sithole-Matarise

LONDON, May 9 (Reuters) - Euro zone government bonds advanced on Friday, extending the previous session's gains on the back of firmer U.S. Treasuries overnight as sagging share prices boosted the appeal of safe-haven government debt.

European equities <.FTEU3> fell one percent in early trade, led by financial stocks after U.S. insurer giant AIG <AIG.N> posted a $7.8 billion quarterly loss, hit by bad credit-related investments.

Crude oil's surge to a new peak above $124 a barrel has also hit stocks, exacerbating fears about inflation and a deteriorating U.S. economy.

Ten-year euro zone bond yields fell to their lowest in three weeks the previous session as some observers perceived the European Central Bank to have slightly softened its monetary policy stance after keeping rates at 4 percent. Bond prices and yields move inversely.

U.S. Treasuries also bounced higher overnight as portfolio managers reallocated money into the market before some $74 billion of bonds mature, pulling benchmark 10-year yields further away from four-month peaks hit earlier in the week.

"(We're) just following the United States ... (and) carrying on yesterday's technical rally," said a trader in London. "Things are a bit more constructive than they were at the start of the week."

At 0720 GMT, the June Bund future was 25 ticks higher at 114.77 from 114.53 at Thursday's settlement close. The contract officially closed at 114.65.

In the cash market, two-year yields were at 3.704 percent, four basis points below levels in late Thursday trade while 10-year yields were at 4.038 percent <EU10YT=RR>, about three basis points lower.

The gap between 10- and 2-year yields was little changed around 36 basis points.

ING strategist Wilson Chin said the bullish move in Bunds and U.S. Treasuries was likely a reversal of the heavy sell-off of the past weeks and was in line with the bank's view for lower rates in the medium term.

"But given that no new severe negative news on the credit crisis front has emerged over the past days, risks remain for a continuation of the sell-off first before we see a more sustainable fall in yields," Chin said.

Euribor interest rate futures were flat to slightly firmer across the 2008 strip, still indicating no chance of an interest rate cut from the ECB this year.

"The ECB took a baby step to a less hawkish stance but they are a long way away from contemplating rate cuts given current inflation levels," said Charles Diebel, a strategist at Nomura in London.

ECB President Jean-Claude Trichet said on Thursday that the bank's Governing Council was unanimous in its widely expected decision to leave rates on hold, with no dissenting calls, and did not rule out a future reappearance of the word "vigilance" -- a past harbinger of rate rises.

Given thin euro zone and U.S. data calendars, the focus will be on developments in equities and oil markets.

(Editing by Ruth Pitchford) ((Reuters Messaging: emelia.sithole.reuters.com@reuters.net, Email: emelia.sithole@reuters.com; +44 20 7542 6752; editing by Chris Pizzey))

Keywords: MARKETS BONDS EURO

--------------MARKET SNAPSHOT AT 0737 GMT ------------------     
Futures continuous contract basis     
                   FUTURES          CASH YIELD   
THREE MONTH EURO 95.255 (-0.005)    3.969 (unch)     
TWO-YEAR SCHATZ 104.04 (+0.12)      3.658 (-0.057)  
10-YEAR BUND 114.93 (+0.40)         4.022 (-0.046)  
30-YEAR BUND                        4.525 (-0.021)  
 Current levels versus prior European close       
----------------------------------------------------------- 
          Reuters Terminal users can see related statistics, 
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EURO GOVT-Bund futures start firmer, tracking US Treasuries

Reuters: [2008-05-09 08:20:00]

LONDON, May 9 (Reuters) - Euro zone government bond futures opened higher on Friday, extending the previous session's gains and tracking U.S. Treasuries overnight with European shares set to fall as rising oil prices continue to fuel inflation worries.

Ten-year yields fell to their lowest in three weeks the previous session as some observers perceived the European Central Bank to have slightly softened its monetary policy stance after keeping rates at 4 percent.

U.S. Treasuries also bounced higher overnight as portfolio managers reallocated money into the market before some $74 billion of bonds mature, pulling benchmark 10-year yields further away from four-month peaks hit earlier in the week.

At 0602 GMT, the June Bund future was 15 ticks lower at 114.68 from 114.53 at Thursday's settlement close. The contract officially closed at 114.65.

In the cash market, two-year yields were at 3.704 percent, 1.1 basis points below levels in late Thursday trade while 10-year yields were at 4.048 percent <EU10YT=RR>, about two basis points lower.

"(We're) just following the U.S ... (and) carrying on yesterday's technical rally," said a trader in London. "Things are a bit more constructive than they were at the start of the week."

Given thin euro zone and U.S. data calendars, focus will be on developments in equities and oil markets where U.S. crude oil futures <CLc1> hit a record high of $124.70 per barrel on Friday as a surge in heating oil futures triggered active buying by investment funds.

European equities <.FTEU3> were called to fall at the open at 0700 GMT with financial stocks likely to remain under pressure after U.S. insurer giant AIG <AIG.N> posted a $7.8 billion quarterly loss, hit by bad credit-related investments.

(Reporting by Emelia Sithole-Matarise, Editing by Chris Pizzey) ((Reuters Messaging: emelia.sithole.reuters.com@reuters.net, Email: emelia.sithole@reuters.com; +44 20 7542 6752; editing by Chris Pizzey))

Keywords: MARKETS BONDS EURO

LONDON, May 9 (Reuters) - Euro zone government bond futures opened higher on Friday, extending the previous session's gains and tracking U.S. Treasuries overnight, with European shares set to fall as rising oil prices continue to fuel inflation worries.

Ten-year yields fell to their lowest in three weeks the previous session as some observers perceived the European Central Bank to have slightly softened its monetary policy stance after keeping rates at 4 percent.

U.S. Treasuries also bounced higher overnight as portfolio managers reallocated money into the market before some $74 billion of bonds mature, pulling benchmark 10-year yields further away from four-month peaks hit earlier in the week.

At 0602 GMT, the June Bund future was 15 ticks lower at 114.68 from 114.53 at Thursday's settlement close. The contract officially closed at 114.65.

In the cash market, two-year yields were at 3.704 percent, 1.1 basis points below levels in late Thursday trade while 10-year yields were at 4.048 percent <EU10YT=RR>, about two basis points lower.

"(We're) just following the U.S ... (and) carrying on yesterday's technical rally," said a trader in London. "Things are a bit more constructive than they were at the start of the week."

Given thin euro zone and U.S. data calendars, focus will be on developments in equities and oil markets, where U.S. crude oil futures <CLc1> hit a record high of $124.70 per barrel on Friday as a surge in heating oil futures triggered active buying by investment funds.

European equities <.FTEU3> were called to fall at the open at 0700 GMT, with financial stocks likely to remain under pressure after U.S. insurer giant AIG <AIG.N> posted a $7.8 billion quarterly loss, hit by bad credit-related investments. (Reporting by Emelia Sithole-Matarise, Editing by Ben Tan) ((Reuters Messaging: emelia.sithole.reuters.com@reuters.net, Email: emelia.sithole@reuters.com; +44 20 7542 6752))

Keywords: MARKETS BONDS EURO

EURO GOVT-Bunds hit 3-wk high as ECB stance seen tad softer

Reuters: [2008-05-08 18:15:00]

By Emelia Sithole-Matarise

LONDON, May 8 (Reuters) - Euro zone government bond futures surged a full point on Thursday, pushing 10-year yields to their lowest in three weeks as equities slipped and some observers perceived the European Central Bank to have slightly softened its monetary policy stance after keeping rates at 4 percent.

ECB President Jean-Claude Trichet's assessment of the slowing growth-high inflation balance was deemed to tilt slightly to the downside risks to growth, and he also noted that the impact of financial market turmoil may be deeper than expected.

June Bund futures notched their first daily rise of a point since end-February -- and only the sixth since 2003, Reuters charts showed -- and Euribor contracts rose across the 2008 strip.

Strategists said although Trichet gave no indication the ECB will cut rates any time soon, the risks to growth appeared higher than at the central bank's last meeting.

The buying took prices up through technical resistance levels, triggering pre-placed buy orders in a move exacerbated as weak European share prices boosted the appeal of safe-haven government debt.

"Today looks to us like a tiny step toward a more dovish stance to be adopted once it will become clearer that the euro zone will not be immune - though to a lower extent - from the slowdown other economic areas are currently experiencing," said Aurelio Maccario, economist at UniCredit in Milan.

Maccario stuck to his view of a first ECB cut in December, with borrowing costs falling to 3 percent by the third quarter of 2009.

At 1600 GMT June Bund futures <FGBLc1> were up a full point on the day at 114.57, breaking through resistance at 113.87.

Two-year bond yields <EU2YT=RR> were seven basis points lower at 3.715 percent, with 10-year yields <EU10YT=RR> down almost 12 basis points at 4.065 percent.

The gap between the 10- and two-year yield narrowed five basis points to around 35 basis points.

September to December Euribor interest rate futures rose three to seven ticks across the 2008 strip <0#FEI:>.

Rate futures, which earlier this year priced in at least 75 basis points of ECB rate cuts during 2008, now indicate a slim chance of one 25 basis point cut by the first quarter next year.

NOT TOO DOVISH

Despite the extent of the bond market rally, many analysts were wary of pinning too much of it on the notion Trichet was overtly dovish.

This is reflected by the fact that five- and 10-year bonds outperformed two-year paper -- if markets were really convinced of a turn in ECB thinking, the more policy-sensitive two-year bond would have gained more.

"Perhaps, with the press conference out of the way and with Trichet not being as hawkish as some members of the ECB have been recently, some players (on the sidelines) took the opportunity to re-enter the market and belatedly react to the weaker data tone of late," said Andy Chaytor at RBS in a note.

"If this is the case, then we expect further participants to be sucked in as the rally continues, increasing its pace."

In the swaps market, 10-year spread widened by around five basis points to 44 basis points <EURAB6E10Y=> <EU10YT=RR>.

Earlier, the Bank of England also held borrowing costs steady, at 5 percent, as expected. Analysts said a slowing UK economy will force it to cut rates next month, even though inflation is heading lower.

European stocks <.FTEU3> were down 0.2 percent. Stock markets are also suffering from inflation concerns after oil <CLc1> jumped to a record above $123 a barrel.

News that the U.S. Securities and Exchange Commission is scrutinising the liquidity of investment banks it supervises and is planning to require the top Wall Street firms to disclose their current liquidity and capital positions publicly also weighed on stocks and indirectly gave a boost to bonds. (Editing by David Christian-Edwards) ((Reuters Messaging: emelia.sithole.reuters.com@reuters.net, Email: emelia.sithole@reuters.com; +44 20 7542 6752))

Keywords: MARKETS BONDS EURO

--------------MARKET SNAPSHOT AT 1605 GMT ------------------     
Futures continuous contract basis     
                   FUTURES          CASH YIELD   
THREE MONTH EURO 95.265 (+0.015)    3.970 (-0.003)  
TWO-YEAR SCHATZ 103.94 (+0.15)      3.703 (-0.080)  
10-YEAR BUND 114.56 (+0.99)         4.063 (-0.121)  
30-YEAR BUND                        4.548 (-0.078)  
 Current levels versus prior European close       
----------------------------------------------------------- 
     Reuters Terminal users can see related statistics, 
 contributions and news by clicking on: 
 NEWS 
 Euro debt market     [GVD/EUR] Debt technicals       [TECH/DBT] 
 Euro news headlines   [EUR-T]  ECB news headlines       [ECB-T] 
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 All EU news          [EU-LEN]  All technical reports     [INSI] 
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 Euro benchmark curve <0#EUBMK=> 
 EMU debt market overview <0#EUROCOMP> 
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 Bunds (Eurex) <0#FGBL:> 
 
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EURO GOVT-Bund future up over a point

Reuters: [2008-05-08 17:18:00]

LONDON, May 8 (Reuters) - Euro zone government bond futures extended gains on Thursday to trade up over a full point, as shares touchedsession lows and some in the market saw a slight softening in the European Central Bank's monetary policy stance.

By 1508 GMT the June Bund future <FGBLM8> was up 1.01 points on the day at 114.58, on track for its first daily rise of a point or more since the end of February and only the sixth in the last five years, Reuters charts show.

Two-year cash yields were 7.4 basis points down at 3.709 percent <EU2YT=RR>.

European stocks briefly touched session lows below 1354 points <.FTEU3> before rebounding.

Some analysts say ECB President Jean-Claude Trichet slightly softened his hwkish stance on rates after the bank held rates steady at 4 percent, possibly pointing to an easing further down the road.

(Reporting by Emelia Sithole-Matarise)

((Reuters Messaging: emelia.sithole.reuters.com@reuters.net, Email: emelia.sithole@reuters.com; +44 20 7542 6752))

Keywords: MARKETS BONDS EURO

Next: EURO GOVT-Bunds rise as Trichet underlines risks to growth