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Bonds round-up: Gilts retreat again

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Date: Tuesday 22 Apr 2008

LONDON (ShareCast) - The Bank of England’s aid package to the banking system continues to act as a drag on gilt prices, as investors come to terms with the idea that the Bank is likely to explore courses of action other than rate cuts to jump-start bank lending.

Prices fell most at the short end of the market with the yield on two-year gilts rising 11 ticks to 4.45%, the highest level seen this year. In contrast, the yield on the benchmark 10-year gilt edged only 2 basis points higher to 4.69%.

In the US, hopes of a rate cut were also fading, leaving prices little changed ahead of a $30 billion auction of two-year notes tomorrow.

The yield on the 10-year note fell one basis point to 3.71% as investors digested housing sales data which showed sales of existing homes fell to an annualised 4.93m in March, from 5.03m in February. The 2% drop in March was smaller than anticipated by economists.

European government bonds retreated after yet another hawkish statement on inflation from a European Central Bank official. Christian Noyer intimated that the central bank would “move rates” if necessary to bring inflation back below 2%.

The yield on the 10-year bund climbed 4 basis points to 4.17%.