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Bonds round-up: US durable goods data sinks treasuries

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Date: Wednesday 26 Mar 2008

LONDON (ShareCast) - US treasuries rose for the second day in succession, with demand spurred by worse than expected US durable goods orders data.

Orders for durable goods fell 1.7% in February, confounding expectations of a rise of around 0.7%.

Demand for government debt was further boosted by yet more evidence of the poor state of the US housing market, as sales of new homes declined to their lowest level in 13 years, hitting an annualised rate of 590,000 in February after January’s 601,000.

However, with investors holding back funds for today’s $28bn auction of two-year notes, prices did not race ahead too far and the yield on the 2-year note fell just 3 basis points to 1.74%. The yield on the 10-year benchmark treasury note fell just one basis point to 3.49%.

In Europe, government bonds were buoyed by hawkish comments from European Central Bank president Jean-Claude Trichet which poured more cold water on the prospects of an interest rate cut this year. Trichet opined that inflation in the euro zone will remain above the bank’s 2% target throughout 2008.

However, gains were not sustained and prices were barely higher by the close as evidence that the German economy is coping well in the current environment came in the form of the Ifo institute’s business climate index, which rose more than expected to 104.8.

Meanwhile, in France, Insee’s confidence index was also on the climb, rising to 109 in February from 107 in January. Economists had been expecting a fall to 106.

UK gilts fell back, despite comments by the Bank of England’s economist, Charles Bean, that sterling is likely to lose value, given the size of the UK current account deficit.

The yield on the 10-year gilt rose 1 basis point to 4.44%.