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Bonds round-up: Housing data peps up bonds

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Date: Tuesday 29 Apr 2008

LONDON (ShareCast) - Gilts were in demand today on hopes that the Bank of England will cut base rates in an effort to revive the UK housing market.

UK consumers tightened their belts another notch last month as tough credit conditions caused a sharp fall in mortgage approvals, according to data from the Bank of England.

Mortgage approvals tumbled to their lowest since records began, figures from the BoE showed, down to just 64,000 in March from a downwardly revised 72,000 the previous month.

The weaker housing market is having a big impact on the retail sales according to the latest Distributive Trades survey from the CBI.

Some 53% of retailers surveyed in April described sales as poor against 15% who said they were good. The balance of minus 38 is the weakest since November 1992.

As a result of the rise in gilt prices the yield on the 10-year gilt fell 6 basis points to 4.68%.

European and US government bonds were also on the up, after Deutsche Bank reported its first quarterly loss in five years and US house prices fell by the most since records began in 2000.

The S&P/Case-Shiller home price index showed its biggest ever year-on-year decline. The index, which measures house prices in 20 US metropolitan areas, fell 12.7% in February from a year earlier. In February alone prices fell 2.6%.

As in the UK, traders bet that the slumping housing market would encourage the central bank to cut base rates. The yield on the 10-year US treasury note fell 5 ticks to 4.15%, while in Europe, the benchmark 10-year bund saw its yield slide 6 basis points to 4.68%.