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Gilts up as fears over UK economy continue to mount

Monday, December 31, 2007

LONDON (Thomson Financial) - Gilts were slightly higher in thin New Year's Eve trade on mounting concerns about the UK's economic outlook for 2008.

Concerns about the state of retail spending in the sales as well as the faltering housing market have reinforced market expectations that the Bank of England will be cutting interest rates further in the months to come.

Earlier this month, the rate-setting Monetary Policy Committee unanimously decided to cut interest rates by a quarter point to 5.50 pct, its first reduction in over two years.

"The move in sterling markets is still driven by deteriorating UK fundamentals, leaving (the) curve modestly steeper from Friday's close," said Eric Wand, fixed income strategist at 4CAST.

All eyes will be on this week's upcoming UK data, particularly the PMI numbers on the manufacturing and services sectors to see if the BoE decides to cut interest rates again in January.

4CAST's Wand said there is scope for further gilts outperformance against European bonds -- European markets are closed today -- in coming days, as the euro zone looks to absorb upcoming French and German supply.

At 1043 GMT the June short sterling future was unchanged at 94.71, while the future for March was up two ticks at 94.41. At the long-end of the curve, the March 2018 5.00 pct bond was up 0.23 at 103.71, with a yield of 4.54 pct.

Posted by MOHAMED SAID at 6:39 AM  


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