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Bonds round-up: Good day for government debt

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Date: Monday 31 Mar 2008

LONDON (ShareCast) - US treasuries were wanted today following a gloomy industry report from the National Association of Purchasing management-Chicago.

Although the association’s business barometer climbed to 48.2 in March from 44.5 in February, a reading below 50 indicates a contraction.

Meanwhile, US payrolls data declined for the third consecutive month, slipping 50,000 in March.

The market was also concerned that proposals to overhaul regulation of the financial sector announced today by Treasury Secretary Henry Paulson would do little to ameliorate the current credit crunch.

Paulson announced proposals to put the current plethora of regulatory systems under the auspices of a single agency and to widen the powers of the Federal Reserve. The reorganisation of the regulatory systems is likely to take years to complete.

The yield on the 10-year treasury note fell 3 basis points to 3.41%.

European government bonds were also on the up, recovering some of the ground lost last week, despite a rise in euro zone HICP inflation, which rose to an annual rate of 3.5% in March from 3.3% in February. The March rate is the highest since the launch of the common currency and way above the European Central Bank’s target rate of 2% or less.

The yield on the 10-year bund fell 4 basis points to 3.9%.

In the UK, economic data was of the downbeat sort that typically benefits gilts.

Average house prices fell for the sixth month in a row in March, according to the latest survey of estate agents by online property group Hometrack.

The average cost of a home in England and Wales declined 0.2% to £174,100, with annual inflation now just 0.4%, the lowest for two years.

UK productivity, meanwhile, slowed in the final quarter to an annual 1.7%, its lowest rate in two years, compared to 2.3% growth in the third quarter.

The yield on the 10-year gilt fell 6 basis points to 4.35%.

The UK's Debt Management Office (DMO) will hold ten auctions of gilts in the first quarter of 2008/9, it said today.

The auctions will take place between April 3 and June 24.

The first issue will be of £3.75bn 4.75% Treasury 2010.