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EURO GOVT-Short debt yields stay at highest since late '07

Reuters: [2008-05-15 17:38:00]

By George Matlock

LONDON, May 15 (Reuters) - Interest rate-sensitive two-year euro zone government bond yields remained at their highest level since late 2007 on Thursday, with investors preoccupied by stronger than expected German economic growth.

There was some bond-friendly data from the United States, although this appeared to have more of an impact on Bund futures than cash issues.

The New York Fed's manufacturing survey business conditions index tumbled to minus 3.23 in May from positive 0.63 in April compared with a forecast for unchanged.

U.S. initial weekly jobless claims were slightly higher than forecast, and later U.S. industrial output was reported to have declined by more than expected.

"With all this bond-friendly U.S. data, by the time we got to the Philadelphia Fed business survey, which declined by less than expected, no one really cared to know. Bond (futures) had decided to hang in there with pared losses," said a trader in London.

At 1510 GMT, two-year yields <EU2YT=RR> were 10.2 basis points higher at 4.01 percent. Earlier, the yield marked 4.051 percent, its highest level since December 28.

The 10-year Bund yield <EU10YT=RR> was up 5.6 basis points at 4.227 percent, as the yield curve flattened.

Bond yields move inversely to bond prices.

June Bund futures <FGBLc1> were 55 ticks lower at 113.17, having fallen as low as 112.81 during the session. But earlier in the session they too had marked their lowest levels since Dec. 28 in the wake of the German data and as technical factors contributed to the declines.

Bund prices were pushed deeply south by German data showing German GDP expanded by a larger-than-expected 1.5 percent quarter-on-quarter in the first three months of 2008, while the euro zone flash estimate of first quarter GDP was also a higher-than-expected 2.2 percent.

"Strong German first quarter GDP data was the dominant focus this morning. The breakdown is not available for some time, but the concern about a 1.5 percent gain on the quarter when the underlying news was deteriorating is that it is probably substantially due to seasonal distortions," said Andy Chaytor, a bond analyst at RBS in London.

Late in the session, ECB Executive Board member Lorenzo Bini Smaghi kept up the central bank's anti-inflation rhetoric as he said no one should doubt the bank's primary focus must be inflation.

In supply, France sold 4.59 billion euros of BTAN paper in an auction which analysts said was slightly disappointing. More on [ID:nL15510970]. (Editing by Gerrard Raven) ((Reporting by George Matlock; george.matlock@reuters.com; Reuters Messaging: george.matlock.reuters.com@reuters.net; +44 20 7542 2508))

Keywords: MARKETS BONDS EURO

 
--------------MARKET SNAPSHOT AT 1527 GMT------------------ 
Futures continuous contract basis  
                        FUTURES           CASH YIELD   
3-MONTH EURIBOR         95.165 (unch)     3.975 (-0.008)  
2-YEAR SCHATZ          103.41 (-0.15)     3.992 (+0.084)  
10-YEAR BUND           113.30 (-0.42)     4.214 (+0.043)  
30-YEAR BUND            88.64 -0.5        4.707 (+0.032)  
 Current levels versus prior European close       
10-YEAR EURO SWAP SPREAD 42  
-----------------------------------------------------------  
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EURO GOVT-Bunds pare losses after U.S. output data

Reuters: [2008-05-15 15:25:00]

LONDON, May 15 (Reuters) - Euro zone government bond futures pared losses on Thursday after the release of weaker than expected U.S. industrial output data.

U.S. industrial output fell by 0.7 percent in April month-on-month and compared with a Reuters poll forecast for a 0.3 percent decline. The March data was also revised to a smaller gain than previously recorded.

The data followed a weaker than expected New York Fed manufacturing survey and slightly higher than forecast weekly jobless claims.

At 1322 GMT, the June Bund future <FGBLc1> was down 42 ticks on the day at 113.30, compared with 113.21 before the output data.

The interest rate-sensitive two-year Schatz yield <EU2YT=RR> was up 4.3 basis points at 3.95 percent, compared with 3.975 percent earlier. ((Reporting by George Matlock; george.matlock@reuters.com; Reuters Messaging: george.matlock.reuters.com@reuters.net; +44 20 7542 2508))

Keywords: MARKETS BONDS EURO

EURO GOVT-Bonds pare losses after weaker U.S. data

Reuters: [2008-05-15 14:44:00]

LONDON, May 15 (Reuters) - Euro zone government bond futures pared losses on Thursday after the release of a weaker than expected U.S. manufacturing survey and higher than forecast weekly jobless claims.

The New York Fed's manufacturing survey, known as the Empire State report, recorded a fall of 3.23 in May, compared with a forecast for unchanged. In April, the survey was positive at 0.63.

U.S. weekly initial jobless claims for state aid were 371,000 compared with a Reuters poll forecast of 370,000.

Although the data suggested economic slowdown, Empire State data came with the highest prices paid index reading since the survey began in 2001, suggesting raised inflationary risks. Table [ID:nNAT004033].

At 1238 GMT, the June Bund future <FGBLc1> was down 50 ticks on the day at 113.22, compared with 113.11 ahead of the data.

The interest rate-sensitive two-year Schatz yield was up 6.6 basis points at 3.975 percent, considerably less than around 10 basis points higher earlier in the session.

U.S. Treasuries turned positive after the data.

Before the data, investors expected a 92 percent chance that U.S. interest rates would remain unchanged at 2.0 percent at the next Federal Reserve rate-setting meeting on June 25 <FEDWATCH>.

After the data, the expectations for unchanged rates fell to 88 percent and chances of a 25 basis points cut to 1.75 percent rose to 12 percent from eight percent earlier. ((Reporting by George Matlock; george.matlock@reuters.com; Reuters Messaging: george.matlock.reuters.com@reuters.net; +44 20 7542 2508))

Keywords: MARKETS BONDS EURO

EURO GOVT-Two-yr euro zone bond yields break above 4 pct

Reuters: [2008-05-15 11:13:00]

LONDON, May 15 (Reuters) - Two-year euro zone government bond yields hit their highest level since the start of the year on Thursday as the market sold off after stronger than expected German GDP data added to pressure from growing inflation fears.

Extending the sell-off seen in the last two sessions, June Bund futures <FGBLM8> plumbed their lowest level this year, as technical selling exacerbated earlier falls.

At 0906 GMT, two-year yields <EU2YT=RR> were 10.8 basis points higher at 4.016 percent, their highest level since January 2. June Bund futures were 79 ticks lower at 112.93, having fallen as low as 112.88.

"It's technical now, there's a lot of stops going off," said a trader. "113.10 was a big level, and 113.03, they've gone, we could be looking as low as 112.60 now."

A run of stronger-than-expected inflation data from the UK this week sent jitters through markets: euro zone interest rate futures have begun to price in a slim possibility of a European Central Bank rate hike, while short-dated euro zone swap rates <EURAB6E2Y=><EURAB6E10Y=> are under pressure, flattening, and inverting the curve.

Stronger-than-expected German GDP expanded by a larger-than-expected 1.5 percent quarter-on-quarter in the first three months of 2008, while the euro zone flash estimate of first quarter GDP was also a higher-than-expected 2.2 percent. ((Reporting by Kirsten Donovan; kirsten.donovan.reuters.com@reuters.net, +44 20 7542 8675))

EURO GOVT-Strong German GDP/inflation fears weigh on bonds

Reuters: [2008-05-15 10:01:00]

By Kirsten Donovan

LONDON, May 15 (Reuters) - Euro zone government bonds extended losses on Thursday as stronger German growth data added to growing fears of global inflation which have eroded rate cut expectations to keep fixed income markets under pressure.

A run of stronger-than-expected inflation data from the UK this week sent jitters through markets: euro zone interest rate futures have begun to price in a slim possibility of a European Central Bank rate hike, while short-dated euro zone swap rates <EURAB6E2Y=><EURAB6E10Y=> are under pressure, flattening, and at times inverting the curve.

Despite a relatively steady opening, Bunds pushed lower in a delayed reaction to data showing German GDP expanded by a larger-than-expected 1.5 percent quarter-on-quarter in the first three months of 2008. That suggests the broader economy has shown resilience to the recent financial markets crisis, although analysts expect some reversal in the second quarter.

Meanwhile, French 2007 growth was revised up to 2.1 percent from the 1.9 percent rate reported previously and preliminary first quarter data also showed growth in the euro zone's second largest economy expanding 0.6 percent quarter-on-quarter, beating expectations for a 0.4 percent rise.

"The European Central Bank is clearly between a rock and a hard place with some softness starting to be seen on the growth side in the short-term indicators, despite the German GDP this morning, and the high inflation," said chief Nordea analyst Niels From.

"It's a dilemma that is likely to continue for a while and so we're likely to see high volatility in the market."

At 0742 GMT, the June Bund future <FGBLM8> was 29 ticks lower at 113.43. Two-year yields were 6 basis points higher at 3.969 percent, while 10-year yields were 2.5 basis points higher at 4.197 percent.

"It's a delayed reaction to the German GDP, the market took some time to wake up to that but it's been compounded by the French numbers," said a trader.

Euribor interest rate futures <0#FEI:> were up to 7.5 ticks lower across the 2009 strip, while analysts said Eonia rate futures were pricing in up to a 20 percent chance of a 25 basis point hike from the European Central Bank by October.

European shares opened lower, despite gains on Wall Street and in Asia overnight, in a heavy session for earnings with Barclays <BARC.L> amongst the reporters.

The final reading of April euro zone consumer prices is due at 0900 GMT, with U.S. jobless, industrial production, housing and business activity data later in the session <MI/DIARY>.

In supply, France will auction 1.2-1.7 billion euros of inflation linked paper and 4.5-5.0 billion euros of 2-year notes. ((Reporting by Kirsten Donovan; kirsten.donovan.reuters.com@reuters.net, +44 20 7542 8675; editing by Chris Pizzey))

--------------MARKET SNAPSHOT AT 0747 GMT ------------------     
Futures continuous contract basis      
                   FUTURES          CASH YIELD   
THREE MONTH EURO 95.155 (-0.010)  3.969 (-0.014)  
TWO-YEAR SCHATZ  103.43 (-0.12)   3.986 (+0.078)  
10-YEAR BUND     113.40 (-0.32)   4.201 (+0.030)  
30-YEAR BUND                      4.695 (+0.021)  
 Current levels versus prior European close       
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