Mon, Apr 7 2008, 09:55 GMT
http://www.afxnews.com
LONDON (Thomson Financial) - European government bonds have started the week on the back foot as an appetite for risk returned to the markets, evidenced most keenly in equity markets.
All of Europe's bourses have opened strongly this morning, with the DAX and CAC indices of leading German and French shares up 70 and 40 points respectively following a bright overnight session in Asia.
"Throughout the past week, risk sentiment has shown surprising resilience amid evidence of further deterioration in global economies up ahead," said Geoffrey Yu, analyst at UBS.
"This suggests that investors believe worst-case scenarios have already been priced in and now have their sights set on the beginning of a recovery sometime later this year," he added.
That fairly sanguine view appeared evident in comments from European Central Bank president Jean-Claude Trichet over the weekend that suggested that an interest rate cut is not in the offing.
Trichet said the euro zone has shown clear resilience to the US economic slowdown in the first quarter.
"It is obvious that there is a level of resilience in the euro area that has been observed in the first quarter of this year and which has been very visible in terms of industrial production and in a number of other domains including the outstanding credit growth," he said.
He said the ECB and the US Federal Reserve therefore face very different economic situations when deciding on interest rates.
"We are in different universes on both sides of the Atlantic and we have to take that into account when we take decisions," he told a news conference at the end of a two-day meeting of European Union finance ministers and central bank governors.
Elsewhere, gilts were lower even though the Bank of England is expected to cut borrowing costs on Thursday.
"Gilts are putting in a very tired looking performance this morning as fixed income markets readjust to a more risk positive environment," said David Corbell, analyst at Thomson IFR Markets.
Corbell said the performance of gilts is hard to square with the increased confidence in the market that the Bank of England will cut its benchmark Bank Rate a quarter point this Thursday.
"This suggests as with other major bond markets that there has been a degree of overshooting which will need to be unwound before upside progress can be expected to resume," he added.
At Yield Change on
1026 BST pct previous close
June euribor future (Liffe) 95.43 dn 0.01
Sept euribor future (Liffe) 95.74 dn 0.03
GERMANY
June bund future (Eurex) 115.20 dn 0.34
4.00 pct Jan 2018 govt bond 100.09 3.99 dn 0.28
FRANCE
4.25 pct Oct 2017 govt bond 100.55 4.18 dn 0.31
ITALY
4.50 pct Feb 2018 govt bond 100.67 4.46 dn 0.38
UK
June gilt future 110.14 dn 0.26
5.00 pct March 2018 govt bond 104.01 4.48 dn 0.32
June short sterling future 94.61 up 0.01
Sept short sterling future 94.92 dn 0.01
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