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Bonds round-up: US treasuries surge higher

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Date: Thursday 21 Feb 2008

LONDON (ShareCast) - US treasuries surged ahead today as minutes from the Jan 29-30 meeting of Federal Reserve policymakers indicated that the Fed sees the need for interest rates to be kept low at present, though the US central bank does stand ready to reverse its interest rate cuts – possibly rapidly – if necessary.

The minutes from the meeting also revealed that policy makers have cut their 2008 growth forecasts for the US economy.

The yield on the benchmark 10-year treasury note slipped 11 basis points to 3.78%.

In Britain and mainland Europe, government bond prices were little changed.

There was little encouragement to buy bunds after the French consumer prices index for January showed a year-on-year rise of 3.2%, up from 2.8% in December.

The data backed up a forecast by the European Commission today which sees annual inflation in the euro zone running at 2.6%, compared to its previous forecast of 2.1%. The commission also cut its forecast for economic growth.

In Germany, producer prices were also on the rise. Year-on-year producer prices gained 3.3%, the highest level in more than a year.

In the UK, prices edged a little higher despite better than expected retail sales figures.

The high street sprang into life during January, with retail sales surging during the month as shoppers splashed out on household goods.

Figures from the Office for National Statistics showed that retail sales jumped 0.8% last month, reversing the previous month’s 0.4% decline and trumping expectations for a 0.3% recovery.

Today’s result was the strongest monthly performance since the 1.7% increase reported back in February 2007 and had the annual increase up at 5.6% from 2.7% in December. Analysts had predicted a 4.7% rise.

The figures give the Bank of England a little more wiggle room in terms of the timing of its next interest rate cut – if, indeed, there is to be one.

The yield on the benchmark 10-year gilt fell one basis point to 4.68%.