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Bonds round-up: Bonds profit from equity woes

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Date: Monday 03 Mar 2008

LONDON (ShareCast) - Government bonds in the UK and mainland Europe started the week firmer, ahead of key interest rate decisions by the Bank of England and the European Central Bank later this week. Both central banks are expected to leave interest rates unchanged.

Gilts headed higher after The Chartered Institute for Purchasing and Supply’s purchasing managers' index climbed to 51.3 in February from an upwardly revised 50.7 the month before.

Economists, who had forecast a smaller increase to 51, point out that today's numbers are still pretty grim. A read of more than 50 indicates expansion.

The report also revealed that pricing pressures hit a record last month, which could give central bank policymakers a headache.

CIPS data had output prices up from 57.9 to 59.9 in February, the highest level since records began, while input prices rose to their highest since 2004, up to 69.7 from 69.3 last time.

The yield on the benchmark 10-year gilt fell 2 basis points to 4.48%.

On the European mainland, government debt was in demand as equity markets lost ground.

Economic indicators were relatively benign. The harmonised index of consumer prices (HICP) rose at an annual rate of 3.2% in February, unchanged from January and in line with expectations. Meanwhile the euro zone manufacturing Purchasing Managers Index for February was 52.3, confirming the preliminary estimate.

The yield on the benchmark 10-year bund fell 2 basis points to 3.87%.

In the US, treasuries gave up earlier gains despite manufacturing activity slowing down. The Institute for Supply Management’s manufacturing index declined to 48.3 in February from 50.7 in January, which was a slightly better figure than anticipated.

The yield on the benchmark 10-year treasury note rose 5 basis points to 3.56%.