Europe Stay updated with Business News, Pakistan news, Current world news and latest world news with Business Recorder.. http://www.brecorder.com/markets/fixed-income/europe.html Thu, 23 Oct 2014 05:47:06 +0000 SRA Framework 2.0 en-gb Investors return to periphery debt as ECB mulls corporate bond buys http://www.brecorder.com/markets/fixed-income/europe/200914-investors-return-to-periphery-debt-as-ecb-mulls-corporate-bond-buys.html http://www.brecorder.com/markets/fixed-income/europe/200914-investors-return-to-periphery-debt-as-ecb-mulls-corporate-bond-buys.html imageLONDON: Low-rated euro zone bond yields fell on Tuesday after several sources told Reuters the ECB was considering buying corporate bonds, quelling some concerns that the central bank was not doing enough to stoke inflation and growth.

The report also prompted investors to pull out of safe haven German bonds, where they had sought refuge after a series of weak growth data - the latest of which came from China on Monday - dragged on the global economic outlook.

"Investors now appear to take a little bit more risk on the basis that there is a relief that the ECB is considering doing something else," said Lyn Graham-Taylor, a rates strategist at Rabobank.

To complement the ECB's covered bond and asset-purchase programme that started this week, the ECB is mulling whether to begin buying corporate bonds. It may decide on the matter as soon as December, sources told Reuters.

German 10-year yields rose 4 basis points after the Reuters report, reversing earlier falls and hitting a high for the day of 0.89 percent.

In contrast, Portuguese yields, which had risen by as much as 10 bps in early trading, were 4 bps lower on the day at 3.48 pct. Italian equivalents were 7 bps lower at 2.51 pct, while Spain's were 3bps lower at 2.23 pct.

Greek yields - pressured by the government's bid to exit its bailout and the threat of early elections - were 25 bps lower at 7.81 pct, having earlier climbed as high as 8.17 pct.

Irish yields were the exception - still some 3 bps up on the day at 1.90 percent. Dealers said expectations of a forthcoming 15-year bond sale were weighing on the market.

Some strategists said that while the new programme was supportive for low-rated bonds, it could push back expectations of a sovereign bond-buying quantitative easing (QE) programme.

"The story may suggest government bond buying is not that close on the agenda from the ECB compared to elevated market expectations," said Rainer Guntermann, a strategist at Commerzbank.

DZ Bank strategist Christian Lenk added: "It certainly gives risky assets a little bit of help and puts Bunds under pressure as the ECB might not focus on government bonds but on corporate bonds instead to fulfil the balance sheet expansion that it has announced."

But with Germany's central bank warning on Monday that the country risks coming dangerously close to recession, any further ECB intervention will bring relief.

The bloc's largest economies are at loggerheads on how to boost growth. Countries including Italy and France have called for more fiscal flexibility in the euro zone, while Germany is eager to keep public finances in check.

Italy's draft budget which it submitted last week, and which proposed slower cuts to its deficit, looks set to be rejected by the European Commission.

Germany and France promised on Monday to unveil joint proposals on strengthening investment and competitiveness by early December.

Copyright Reuters, 2014

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imad_kueconomist@yahoo.com (Imaduddin) Europe Tue, 21 Oct 2014 11:42:20 +0000
Solid US data calms euro zone bond market but more volatility seen http://www.brecorder.com/markets/fixed-income/europe/200712-solid-us-data-calms-euro-zone-bond-market-but-more-volatility-seen.html http://www.brecorder.com/markets/fixed-income/europe/200712-solid-us-data-calms-euro-zone-bond-market-but-more-volatility-seen.html imageLONDON: Euro zone bond markets looked more stable on Monday after solid US economic data eased some of the concerns over a slowdown in global growth that led to sharp sell-offs in peripheral debt last week.

Yields on the euro zone's lowest-rated debt rose by 40 to over 200 basis points from lows to highs last week -- among the biggest moves seen since the peak of the debt crisis -- before retreating on Friday.

Signs that another recession may be brewing due to a broader slowdown in global growth have caused investors to refocus on high debt levels in countries like Italy, Spain or Portugal.

But Friday brought a surprisingly strong Thomson Reuters/University of Michigan index of U.S. consumer sentiment -- the highest reading in more than seven years -- while new housing starts also rose more than expected last month.

Markets remained nervous, however.

"The dust is settling at the moment after the terrible week we had," said Patrick Jacq, rate strategist at BNP Paribas.

"Things remain vulnerable.... but there is not such a massive flight to quality as we had last week. The market is not yet really confident, but we see little reason to extend the massive movement we saw last week."

German 10-year Bund yields, which set the standard for euro zone borrowing costs, fell 1 basis point to 0.85 percent. Spanish and Italian yields were 2 bps up at 2.19 percent and 2.52 percent, respectively.

Comments from central bankers provided some support.

Boston Fed President Eric Rosengren said recent volatility in financial markets reinforces the need for the Federal Reserve to be patient with its policy stimulus. He said he could "easily imagine" a scenario in which the U.S. central bank keeps interest rates near zero until 2016.

The European Central Bank has started buying covered bonds as part of its new stimulus package, an ECB spokesman said on Monday.

VOLATILITY AHEAD

But analysts expect bond markets to remain volatile.

"The outlook that investors have at this moment on the economy and central bank policy is not very clear," said Alessandro Giansanti, senior rate strategist at ING.

"The trend should still be positive for Bunds, due to the risk of falling back into recession."

RIA Capital Markets bond strategist Nick Stamenkovic said data due this week were unlikely to ease investor concerns about the economy. Third quarter growth data in China on Tuesday are "almost certainly going to show a slowdown in growth" while flash business surveys in the euro zone on Thursday are likely to show that "the economy still is very much in the doldrums".

"The underlying sentiment remains pretty fragile. The sharp rise in volatility last week is likely to make investors cautious," Stamenkovic said.

Even markets in Greece were calmer on Monday after having their worst week since 2012 due to the risk of early elections next year and nervousness caused by Prime Minister Antonis Samaras' plans to exit the bailout programme early.

He told Reuters in an interview on Friday he can lead his country out of the four-year aid deal and not call early elections. One possibility was a credit line which Athens could tap post-bailout if markets got nervous, he said. However, it is far from clear whether such an option is open.

Greek 10-year yields were 9 basis points lower at 7.96 percent, having climbed above 9 percent last week.

Copyright Reuters, 2014

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imad_kueconomist@yahoo.com (Imaduddin) Europe Mon, 20 Oct 2014 12:51:41 +0000
UK gilts tumble for second day as equities rebound http://www.brecorder.com/markets/fixed-income/europe/200361-uk-gilts-tumble-for-second-day-as-equities-rebound.html http://www.brecorder.com/markets/fixed-income/europe/200361-uk-gilts-tumble-for-second-day-as-equities-rebound.html imageLONDON: British government bonds fell steeply for a second day on Friday, after share prices rebounded and investors judged that Wednesday's leap up in gilt prices was overdone.

Added into the mix were comments from the Bank of England's chief economist that -- although the outlook was gloomier than three months ago, with a risk of long-term stagnation -- a rate rise around the middle of next year was still possible.

A rebound in share prices and a fall in the yields on Greek and Spanish bonds also took the shine off safe-haven British government debt, which is now little changed from last Friday despite some of the biggest one-day moves in more than a year.

Ten-year gilt yields stood 7 basis points higher on the day at 2.16 percent at 1135 GMT, close to a one-week high and well off the trough of 1.937 percent touched early on Thursday, the lowest since May 2013.

Five- and 30-year gilt yields were up a similar amount .

"Peripheral (euro zone) spreads are tighter and equities are higher, so you are seeing a fall in (core) bonds, which gilts are underperforming," said RBC gilts strategist Vatsala Datta.

Ten-year gilts' yield premium over Bunds widened 4 basis points on the day to 131 basis points, and at one point reached their highest in a week at 134.9 basis points. On Wednesday the spread had fallen to a four-month low below 119 basis points.

The effect on the bond market of comments by BoE chief economist Andrew Haldane was harder to tease out.

Haldane said that he -- like financial markets -- had grown gloomier about the economic outlook over the past three months, and had pushed back his expectations of when rates would rise.

But he described expectations of a rate rise in the middle of next year as "not a bad bet". Market expectations for when the BoE will next raise rates have swung sharply this week, exacerbated by a lack of liquidity.

At one point on Wednesday markets appeared to have ruled out any increase in rates at all next year, though on Friday analysts said a move in August or September was now priced in.

Economists polled by Reuters still expect a move in early 2015.

Marc Ostwald, a strategist at ADM Investor Services International, said that markets may have taken Haldane's gloom as a signal that rates would stay on hold for a long time, and moved out of gilts and into riskier assets in a hunt for yield.

RBC's Datta said his comments could be viewed as a reminder that rates would ultimately rise, and that -- particularly for longer-dated bonds -- yields were too low.

Haldane also raised the possibility that Britain's weak productivity and wage growth -- not its recent strong economic expansion -- could prove more typical of the future.

Next week offers more opportunities for investors to take fright at risks to the global economy, particularly with US inflation data due on Wednesday.

Wednesday will also bring a further update of the BoE's views on rates, with the publication of October's Monetary Policy Committee minutes.

The discussion, however, predates the recent market turmoil and data showing a slowing in job creation and a fall in British inflation to a five-year low of 1.2 percent.

Copyright Reuters, 2014

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s.rs96@yahoo.com (Shoaib-ur-Rehman Siddiqui) Europe Fri, 17 Oct 2014 16:27:46 +0000
Bund yields hit new lows as euro zone outlook weakens http://www.brecorder.com/markets/fixed-income/europe/199903-bund-yields-hit-new-lows-as-euro-zone-outlook-weakens.html http://www.brecorder.com/markets/fixed-income/europe/199903-bund-yields-hit-new-lows-as-euro-zone-outlook-weakens.html imageLONDON: German Bund yields fell to a record low on Wednesday as worries over a deteriorating euro zone economic outlook, fed by another credit rating blow for France, and "free falling" inflation expectations dominated the market.

Yields jumped in Greece, where investors are worrying about the risk of snap elections and Athens' plans to exit its bailout early.

Data releases continued to undershoot expectations, with the latest being a 0.6 percent fall in Finnish economic output in August that followed a revised decline of 1.2 percent in July.

A key business survey on Tuesday fuelled concerns that Germany may face recession.

The weak economic data pushed one of the most closely-watched measures of inflation expectations to new record lows, increasing the pressure on the European Central Bank to ease monetary policy further.

"Investors are looking at the risk of quite depressed economic growth or recession in the euro zone," said Alessandro Giansanti, senior rates strategist at ING.

"Inflation expectations are in free fall so I think there is no other option for the ECB then to rush in and buy government bonds as soon as possible."

There also seems little point in looking elsewhere in the region for a growth kick. Fitch placed France's AA+ rating on negative watch late on Tuesday, citing risks to the economic outlook and deficit-reduction plans.

That followed Standard & Poor's revision of France's AA outlook to negative from stable last week.

German 10-year Bund yields, which set the standard for borrowing costs in the euro zone, hit a record low of 0.824 percent, 2 basis points lower on the day.

"Given the already very low yield level, Bunds are likely to find it increasingly difficult to advance further," said Manfred Bucher, senior analyst at Bayerische Landesbank. "However, they remain well supported amid increasing scepticism on the economy and deflation concerns."

France's 10-year yields also fell to 1.18 percent, with the ratings move not hurting the appeal of its debt as markets are focused more on the impact a weakening outlook would have on central bank policy.

FREE FALL

The euro five-year, five-year breakeven forward , which shows where markets expect 2024 inflation forecasts to be in 2019 was around 1.76 percent, a record low. It has fallen 20 bps in the past month.

Annual inflation in the euro zone slowed to just 0.3 percent in September and oil prices around four-year lows are stoking fears the euro zone could fall into deflation, which could cripple economic growth even more.

"With deflation worries still very much to the fore in the euro area and the pressure on the ECB to take further action in coming months, Bunds will remain underpinned in the near term," said Nick Stamenkovic, bond strategist at RIA Capital Markets.

Greece was the only market in the euro zone which ignored prospects of ECB easing. Ten-year yields rose 55 basis points to 7.60 percent, their highest since March.

Investors fear that an early exit from the bailout programme would derail Athens' fragile fiscal progress and that snap elections are inevitable next year when a presidential vote is held. That brings the prospect of a political deadlock or a government led by the radical leftist Syriza party, which has campaigned against austerity.

"Investors are worried that Greece cannot survive alone," ING's Giansanti said.

Copyright Reuters, 2014

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imad_kueconomist@yahoo.com (Imaduddin) Europe Wed, 15 Oct 2014 12:16:00 +0000
German bond yields hit record lows after ZEW fuels growth scare http://www.brecorder.com/markets/fixed-income/europe/199752-german-bond-yields-hit-record-lows-after-zew-fuels-growth-scare.html http://www.brecorder.com/markets/fixed-income/europe/199752-german-bond-yields-hit-record-lows-after-zew-fuels-growth-scare.html imageLONDON: German government bond yields hit a new record low on Tuesday as a monthly gauge of economic sentiment reinforced fears the euro zone's engine may be slipping towards recession.

The ZEW institute's index of German economic sentiment turned negative for the first time since late 2012, falling to -3.6 in October from 6.9 the previous month. Economists polled by Reuters had expected a reading of 1.

Speaking after the release, ZEW's chief economist said the German economy could shrink in the third quarter, taking it into recession after a contraction of 0.2 percent in April-June.

Europe's malaise is fuelling concerns around global growth, pushing investors towards safe-haven assets, but the impact on some of the euro zone's riskiest government debt has been limited by expectations of further European Central Bank easing.

"Economic concerns are so much in focus now that the risk-off sentiment is more dominant currently than the QE (quantitative easing) effect," DZ Bank strategist Daniel Lenz said, referring to expectations among investors that the ECB will launch a scheme to buy sovereign bonds with new money.

Ten-year German bond yields dipped 4 bps to a new record low of 0.847 percent after the ZEW reading, while Italian and Spanish equivalents each rose 1 bp to 2.34 and 2.09 percent. Lenz said that if QE was not anticipated, yields in Spain and Italy would be 6-7 bps higher.

But hopes for a sovereign bond-buying scheme could be dealt a blow by Europe's top court, which opens discussions on the legality of any such scheme on Tuesday.

After a referral by Germany's Constitutional Court, the European Court of Justice will hear challenges from German plaintiffs to the ECB's existing Outright Monetary Transactions scheme. They say that pledge to buy bonds, made in 2012 at the peak of the euro debt crisis but never used, exceeded the ECB's mandate and violated a ban on it funding governments.

Even though a final decision is not seen as imminent, the hearings will give some insight into the likelihood of the ECB being able to deliver on a full-blown QE programme.

GREEK RISKS

Greek 10-year bond yields rose above 7 percent for the first time since March on Tuesday, extending a rise prompted by political uncertainty and nervousness over plans by Athens to exit the country's bailout early. Yields were 32 bps higher on the day at 7.10 percent..

"We don't have buyers in the Greek bond market because of the political risk, the possibility of snap elections in early 2015," a bond trader at a major Greek Bank told Reuters.

Prime Minister Antonis Samaras won a parliamentary vote of confidence in his right-left coalition government last Friday but political analysts say a snap election is likely which could propel the radical leftist Syriza party to power.

A poll on Tuesday showed Syriza ahead of the government party.

Elsewhere, investors appeared to shrug off a decision by Spain's Catalonia region to cancel an independence referendum.

As widely expected in the market, Catalan leader Artur Mas called off the vote scheduled for November 9 and said there would be a consultation on breaking away from Spain instead.

"I was in Spain recently and clearly all our Spanish clients did not expect Catalonia to go ahead with the referendum," said Ciaran O'Hagan, a bond strategist at Societe Generale.

"That is why you have seen no market reaction."

Copyright Reuters, 2014

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imad_kueconomist@yahoo.com (Imaduddin) Europe Tue, 14 Oct 2014 13:59:17 +0000
British 10-year gilt yields touch 16-month low as rate rise expectations pushed back http://www.brecorder.com/markets/fixed-income/europe/199546-british-10-year-gilt-yields-touch-16-month-low-as-rate-rise-expectations-pushed-back.html http://www.brecorder.com/markets/fixed-income/europe/199546-british-10-year-gilt-yields-touch-16-month-low-as-rate-rise-expectations-pushed-back.html imageLONDON: British 10-year government bond yields fell to their lowest level in 16 months on Monday on growing expectations that the Bank of England will delay a first interest rate hike until deep into 2015.

Yields on 10-year debt were down more than 3 basis points at 2.18 percent at 0923 GMT, adding to last week's 19-basis-point drop, which was the largest weekly decline in more than a year. Earlier on Monday the yield was as low as 2.179 percent, its lowest since June 2013.

Gilts continued to outperform German government debt with the yield spread between the 10-year gilt and the equivalent German Bund tightening by 3 basis points to fall below 130 basis points, its narrowest since early June.

December gilt futures hit a contract high of 115.68, up 44 ticks on the day.

Britain's economy has performed much more strongly than Germany's and the euro zone as a whole.

But the Bank of England is not expected to start raising interest rates quickly because wage growth remains depressed, reducing the risk of a bounce in inflation, and as the weak euro zone economy poses risks to Britain's strong economic growth.

Simon Peck, a strategist at RBS, said investors had scrambled last week to buy gilts after previously betting on a UK interest rate rise in early 2015.

Data this week is expected to show continued weak pay growth and low inflation, which would add to the sense that the Bank of England is comfortable keeping rates on hold.

"It's tough to see any real catalyst for a reversal of what we have seen and policymakers have been pretty quiet in terms of their rhetoric and communication of late so we are just seeing this gradual grind continue," Peck said.

Data on Wednesday is expected to show that British average weekly earnings, including bonuses, rose a meagre 0.7 percent in the three months to August, from the same period last year. That would be half the rate of annual inflation, which analysts forecast at 1.4 percent in August. Inflation data is due out on Tuesday.

Copyright Reuters, 2014

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imad_kueconomist@yahoo.com (Imaduddin) Europe Mon, 13 Oct 2014 13:27:50 +0000
Euro zone yields near lows as S&P moves underscore growth worries http://www.brecorder.com/markets/fixed-income/europe/199541-euro-zone-yields-near-lows-as-s.html?p-moves-underscore-growth-worries= http://www.brecorder.com/markets/fixed-income/europe/199541-euro-zone-yields-near-lows-as-s.html?p-moves-underscore-growth-worries= imageLONDON: Euro zone bond yields held near record lows on Monday as Standard & Poor's credit rating downgrade of Finland and its cut in France's outlook to negative added to concerns about a deteriorating global growth outlook.

The S&P moves came late on Friday at the end of a week heavy with poor economic data from across the euro zone and in which the International Monetary Fund revised its global growth forecasts lower for the third time this year.

Investors look at the worsening ratings as another argument for the European Central Bank to ease monetary policy further, potentially by buying large amounts of government bonds, pushing aside concerns over long-term creditworthiness.

"It is important to some extent but I wouldn't put a lot of weight on the ratings," said Aliki Papasteriou, investment analyst at Nedgroup Investments. "If you see further deterioration you would expect some ECB action."

German 10-year Bund yields, the benchmark for euro zone borrowing costs, fell 1 basis point to 0.88 percent, just above last week's record low of 0.859 percent.

Standard & Poor's rating for France remains at AA, but the outlook was revised on Friday to negative due to difficulties pushing through reforms and a porous budget.

On the same day, Finland -- one of the last top-grade sovereigns in the euro zone -- lost its triple-A rating from S&P. The rating agency cited risks of protracted economic stagnation because of an ageing population and shrinking workforce.

Helsinki has taken an additional economic hit this year as sanctions that Moscow and the West imposed on each other over the Ukraine crisis have hurt trade with Russia, one of its main trading partners.

RELYING ON CENTRAL BANKS

French and Finnish yields were little changed at 1.25 percent and 1.00 percent, respectively - also not far from their record lows.

"As long as markets are expecting the ECB to buy government bonds, rating downgrades, particularly from the best or second best (rated) euro zone members could not be ... (negative) for the bond market," said Marius Daheim, chief strategist at Bayerische Landesbank.

Adding to hopes of looser monetary policy across the globe, Federal Reserve officials said on Saturday the slowdown in the global economy could delay an increase in U.S. interest rates if serious enough.

Portugal's ratings remained below investment grade, disappointing some in the market that had expected an upgrade.

Because of its junk rating, Portugal is treated by many investors as an emerging market rather than a euro zone member so its bond market sees days when it is decoupled from its fellow members of the currency union.

Portuguese 10-year yields rose 9 basis points to 3.06 percent.

Italy kicked off a busy week in terms of debt sales in the euro zone with an auction of 6.75 billion euros of 2018, 2021 and 2044 bonds. Germany, France and Spain are also due to sell bonds this week.

Copyright Reuters, 2014

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imad_kueconomist@yahoo.com (Imaduddin) Europe Mon, 13 Oct 2014 13:18:31 +0000
Bund yields fall as S&P rating moves underscore growth worries http://www.brecorder.com/markets/fixed-income/europe/199503-bund-yields-fall-as-s.html?p-rating-moves-underscore-growth-worries= http://www.brecorder.com/markets/fixed-income/europe/199503-bund-yields-fall-as-s.html?p-rating-moves-underscore-growth-worries= imageLONDON: German Bund yields fell on Monday as growth concerns, accentuated by S&P's credit rating downgrade of Finland and its cut in France's outlook to negative, pushed investors towards relatively low-risk assets.

The International Monetary Fund, which revised its global growth forecasts lower last week for the third time this year, said on Saturday bold action was needed to bolster the global economic recovery

. Standard & Poor's rating for France remained at AA+, the second highest level in its scale, but the outlook was revised to negative due to difficulties pushing through reforms and deteriorating finances.

Finland lost one of the euro zone's last top-notch credit ratings, with S&P citing risks of protracted economic stagnation because of an ageing population and shrinking workforce.

Helsinki has taken an additional economic hit this year as the sanctions that Moscow and the West imposed on each other over the Ukraine crisis have hurt trade with Russia, one of its main trading partners.

Portugal's ratings remained below investment grade, disappointing some in the market that had expected an upgrade.

"Growth concerns seem to be everywhere you look so it all feels fairly constructive (for bonds)," one trader said. German 10-year Bund yields, the benchmark for euro zone borrowing costs, fell 2 basis points to 0.87 percent, not far from last week's record low of 0.859 percent.

French and Finnish yields were flat to slightly lower at 1.25 percent and 1.00 percent, respectively - also not far from their record lows.

The growth concerns have been fuelling expectations that the European Central Bank could eventually launch a large-scale bond-buying programme to give the economy a shot in the arm and lift inflation from near-zero levels.

"As long as markets are expecting the ECB to buy government bonds, rating downgrades, particularly from the best or second best (rated) euro zone members could not be

(negative) for the bond market," said Marius Daheim, chief strategist at Bayerische Landesbank.]

Federal Reserve officials said on Saturday the slowdown in the global economy could delay an increase in US interest rates if serious enough.

Italy will kick off a busy week in terms of debt sales in the euro zone with an auction of as much as 6.75 billion euros of 2018, 2021 and 2044 bonds. Germany, France and Spain are also due to sell bonds this week.

Copyright Reuters, 2014

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rocking.saad.jabri@gmail.com (Saad Jabri) Europe Mon, 13 Oct 2014 09:59:57 +0000
Greece to auction 625mn euros of 3-month T-bills Oct. 15 http://www.brecorder.com/markets/fixed-income/europe/199151-greece-to-auction-625mn-euros-of-3-month-t-bills-oct-15.html http://www.brecorder.com/markets/fixed-income/europe/199151-greece-to-auction-625mn-euros-of-3-month-t-bills-oct-15.html imageATHENS: Greece will auction 625 million euros ($792 million) of three-month treasury bills on October 15 to refinance a maturing issue, the country's debt agency PDMA said on Friday.

The settlement date will be October 17. Only primary dealers will be allowed to participate and no commission will be paid.

Athens has a stock of about 15 billion euros of T-bills that it regularly refinances. A previous sale of three-month paper in September was priced to yield 1.70 percent.

Copyright Reuters, 2014

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s.rs96@yahoo.com (Shoaib-ur-Rehman Siddiqui) Europe Fri, 10 Oct 2014 12:25:47 +0000
Short-dated gilts surge as Fed prompts UK rate hike rethink http://www.brecorder.com/markets/fixed-income/europe/199031-short-dated-gilts-surge-as-fed-prompts-uk-rate-hike-rethink.html http://www.brecorder.com/markets/fixed-income/europe/199031-short-dated-gilts-surge-as-fed-prompts-uk-rate-hike-rethink.html imageLONDON: Short and medium-term British government bond prices rose on Thursday as expectations that British interest rates will rise early next year were scaled back following dovish minutes from the U.S. Federal Reserve and a downbeat business survey.

Bond prices rose globally after the minutes showed Fed policymakers were worried about the global economy and the strength of the dollar.

Coupled with a British Chambers of Commerce (BCC) business survey that warned of a "first alarm bell" for Britain's rapid recovery, gilt yields fell heavily - particularly across the two to 10-year maturities.

Short sterling <0#FSS:> futures rose strongly across 2015 contracts and further out, suggesting the markets had pushed out expectations for British interest rate rises in the future.

"The more you push the Fed timeline (for future interest rate hikes) out, the more you push the Bank of England timeline out," said Marc Ostwald, strategist at ADM Investor Services.

Asked where the market was pricing the next BoE rate hike, Ostwald said: "We're on February still, but we're leaning more and more towards June, and maybe it'll even be after that."

He added that the BCC survey, which showed firms reported the weakest export growth in two years, was a worrying sign for Britain's economic recovery, and therefore also coloured the view that BoE rates will rise in the next few months.

The BoE announces its October monetary policy decision at 1100 GMT, and economists polled by Reuters expect no change to record low interest rates of 0.5 percent.

Five-year gilts outperformed other maturities, with their yield dropping some 6 basis points on the day to 1.54 percent at 0931 GMT. The yield had earlier bottomed out at 1.505 percent - its lowest since Nov. 26 last year.

The 10-year gilt yield earlier hit a fresh 16-month low at 2.191 percent, and was last at 2.23 percent - down more than 3 basis points on the day.

The yield spread between 10-year gilts and the equivalent German Bund tightened further on Thursday to hit a session low of 131.5 basis points, the narrowest gap since mid-June. It was last at 134.5 basis points, down around 1 basis point on the day.

Copyright Reuters, 2014

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imad_kueconomist@yahoo.com (Imaduddin) Europe Thu, 09 Oct 2014 12:42:44 +0000