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Bonds round-up: House price data lifts gilts

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Date: Friday 28 Mar 2008

LONDON (ShareCast) - Gilts are sharply higher today on the back of more gloomy news about the UK housing sector.

House prices continued to slide in March, according to the Nationwide building society, with annual inflation at its lowest for 12 years. The data prompted the building society to predict interest cuts sooner rather than later - a view that was evidently shared by the bond markets.

Sentiment was further boosted by a slight downward revision to UK third quarter GDP and a flat fourth quarter performance by the UK economy.

The British economy grew 0.6% in the fourth quarter of last year, but expansion in the third quarter was revised down to 0.6% from a previous estimate of 0.7%, taking the overall rate of growth for 2007 down to 3% from initial estimates of 3.1%.

The yield on the benchmark 10-year gilt dived 8 basis points to 4.42%.

Economic data also drove US treasuries higher. Personal spending in the US rose 0.1% in February, after growing 0.4% in January. Incomes grew 0.5%, compared with a January gain of 0.3%.

The yield on 10 year notes fell 2 basis points to 3.51%.

European government bonds failed to join the party after European Central Bank (ECB) member Axel Weber expressed the view that interest rates will need to go up in order to restrain inflation.

Speaking in Luxembourg, Weber said the ECB will take action to preserve price stability if required.

The yield on the benchmark 10-year bund rose one basis point to 3.94%.