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European government bonds higher as equities fall into the red

Monday, February 11, 2008

LONDON (Thomson Financial) - European government bonds were higher, tracking falls on equity markets on fresh write-off fears and as concerns about the global economic outlook intensified following the G7 meeting over the weekend.

The tumble on share markets has been driven by more bad news from financial companies, with American International Group revealing that its auditors have questioned the company's internal controls over the valuation of credit default swap portfolio obligations.

"AIG, 'accounting' and 'credit default swap' all in the same headline have investors scurrying for cover and bidding bonds back up again," said Michael Cartine at Thomson IFR Markets.

Further bad news came from Standard Chartered PLC, which announced it is withdrawing plans to provide liquidity to its Whistlejacket Capital structured investment vehicle.

Meanwhile, this weekend's communique from the G7 meeting in Tokyo only served to give further justification for financial markets to step up levels of risk aversion.

The communique focused heavily on the ongoing credit crunch and risks to global growth. US Treasury Secretary Henry Paulson also stressed that the turbulence in financial markets is both "serious" and "persisting," and he expects "continued volatility as risk is repriced."

Over in the UK meanwhile, gilts pared losses slightly but remained firmly in the red, after much stronger-than-expected producer price inflation data this morning suggested the Bank of England will have limited room to cut interest rates.

The figures showed UK input prices jumped by 2.6 pct in January from December, way above analyst expectations for a 1.3 pct rise and giving a massive annual rise of 19.1 pct, the biggest increase for 22 years.

Output price figures meanwhile showed that companies have had to pass on these extra costs into their prices, with the monthly rise of 1.0 pct the biggest since January 1995 and the annual rise of 5.7 pct the highest since July 1991.

"For a market which is aggressively priced for future easing, this will make for uncomfortable reading and rate cut expectations will need to be pared back," said Daragh Maher at Calyon.

At Yield Change on

1540 GMT pct previous close

March euribor future (Liffe) 95.76 dn 0.04

June euribor future (Liffe) 96.25 dn 0.02

GERMANY

March bund future (Eurex) 117.56 up 0.33

4.00 pct Jan 2018 govt bond 101.22 3.84 up 0.11

FRANCE

4.25 pct Oct 2017 govt bond 102.28 3.96 up 0.15

ITALY

5.25 pct Feb 2018 govt bond 102.50 4.23 up 0.08

UK

March gilt future 110.58 dn 0.27

5.00 pct March 2018 govt bond 104.26 4.46 dn 0.42

March short sterling future 94.42 dn 0.08

June short sterling future 94.87 dn 0.08

Posted by MOHAMED SAID at 11:24 AM  

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