European govt bonds fall as mkt reassesses Ifo data, looks ahead to FOMC meeting

BY

European government bonds turned lower, tracking falls in US Treasuries and higher equities and after a key survey of German business confidence still suggested the European Central Bank will raise interest rates further in the coming months.

Weaker-than-expected US jobless claims and housing data this afternoon failed to have much impact on bonds meanwhile, with market players instead looking ahead to next week s rate-setting meeting in the US.

Though the Federal Reserve is fully expected to leave interest rates on hold, attention will focus on the accompanying statement where any hawkish comments will cause further losses for bonds, analysts said.

"There are rumours that the statement will say the economy is doing very well and that inflation risks are to the upside, which will suggest that there will not be any monetary policy easing any time soon," said 4CAST fixed income strategist Jose Garcia-Zarate.

"There has been a bit of hedging (in the bond market) against that scenario, and it s quite likely that will intensify going into next week," he said.

Meanwhile, bonds erased earlier short-lived gains on the back of a weaker-than-expected German Ifo business climate survey as market players concluded that the German economy still looks to be on a very solid footing, allowing the ECB to raise interest rates further.

The Ifo research institute revealed that its business climate index for Germany slipped to 107.9 in January from 108.7 in December. Economists polled by AFX News had forecast the index to increase slightly to 108.9.

The index remains well above its long-run average, however. Moreover, the decline was due largely to a fall in the current conditions index, with the recent VAT hike in Germany denting sentiment, and this was offset by a pick-up in the expectations component.

"When you look at the detail, you realise the German economy is in good shape and that consumers are in a good position to absorb the tax increase," Garcia-Zarate said.

"The ECB is still very much on cue and interest rates are set to rise further, which is exerting some pressure on bonds," he said.

Over in the UK meanwhile, gilts were also lower, tracking falls in bonds elsewhere, but also in a correction after yesterday s gains were viewed as overdone.

Yesterday s minutes to the Monetary Policy Committee meeting earlier this month, when rate-setters opted for a surprise quarter-point hike, revealed that the vote was the closest possible at 5-4. This caused market players to scale back their expectations for UK interest rate hikes in the coming months, but investors are now starting to think that the market overreacted to the news.
"There s been a bit of a correction of yesterday s overreaction to the MPC minutes. Four members voted against a rate hike but they were not voting against raising rates per se and this does not mean we have seen the end of the tightening cycle," Garcia-Zarate said.

Elsewhere, this morning s auction of 50-year index-linked gilts saw solid demand, with the bid-to-cover ratio -- a gauge of demand -- at 2.42.

金水水

The article is very dood, but I  cannt  understand  at all. My English  level is too   general.  If  you can  translate  it, what  a good  news!:P

BY

金水水  在 2007-1-26 02:32 發表:

The article is very dood, but I  cannt  understand  at all. My English  level is too   general.  If  you can  translate  it, what  a good  news!:P

Sorry, no time now.  Good night.

金水水

Never  mind. Good  night.Have a good  gream.

kwy

Thanks for posting!!