LONDON (Thomson Financial) - European government bonds were higher after a key German confidence indicator this morning came in in line with expectations and as markets looked to correct some of the recent extended run of losses.
Germany's Ifo research institute said its business climate index for Germany in May was unchanged at 108.6 from April, in line with economists' predictions and backing up expectations the European Central Bank will hike interest rates later this year.
John Ratcliffe at Thomson's IFR Markets noted that the bond market's positive reaction to the in-line Ifo reading 'suggests the market is in a corrective mood, which is understandable after the recent poor run.'
Longer-term, however, the continued firm confidence shown by the Ifo data and Tuesday's ZEW should be negative for bonds, said David Brown at Bear Stearns.
'The upturn in growth prospects should continue to fuel the faster flow of asset allocation funds into higher yielding stocks away from low yielding government debt markets,' he said.
Overall, sentiment in the bond market remains poor, with rising stock markets, strengthening economic data in Europe and the firm prospect of higher interest rates causing demand for bonds to weaken.
Earlier today, German GDP data confirmed preliminary figures, while French and Italian confidence indicators both edged down slightly but had little impact on the market.
Over in the UK meanwhile, gilts were also higher, tracking their European counterparts and barely reacting to a survey from UK business lobby the CBI showing the proportion of UK manufacturers expecting to raise prices over the coming quarter is the highest for twelve years.
Later on, US durable goods and new home sales data could provide some relief for the bond market.
Durable goods orders are seen rising 0.4 pct in April after rising 3.4 pct in March, while new home sales are expected to rise to 860,000 units in April from 858,000 units in the previous month.
Analysts at Calyon said the figures 'should be bond-friendly, especially housing.'
At Yield Change on
1140 BST pct previous close
June euribor future (Liffe) 95.84 unchanged
Sept euribor future (Liffe) 95.655 up 0.020
GERMANY
June bund future (Eurex) 112.58 up 0.15
3.75 pct Jan 2017 govt bond 95.34 4.34 up 0.12
FRANCE
3.75 pct Apr 2017 govt bond 94.93 4.39 up 0.15
ITALY
4.00 pct Feb 2017 govt bond 96.00 4.56 up 0.09
UK
June gilt future 105.89 up 0.13
4.00 pct Sept 2016 govt bond 91.21 5.20 up 0.12
June short sterling future 94.13 unchanged
September short sterling future 93.96 up 0.01 alex.brittain@thomson.com jkm COPYRIGHT Copyright AFX News Limited 2007. All rights reserved. The copying, republication or redistribution of AFX News Content, including by framing or similar means, is expressly prohibited without the prior written consent of AFX News.
© 2007 AFX News
