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Date: Thursday 08 May 2008

LONDON (ShareCast) - Gilts surged ahead despite interest rates being kept on hold as investors bet that future cuts are inevitable.

The BOE decided against back to back interest rate cuts, leaving borrowing costs at 5%, prompting analysts to speculate that a drop must come in June.

Today’s announcement was expected to be a close call following some terrible data in recent weeks that got many wondering whether there might be a fourth cut in six months in May.

The shorter two-year gilt yield skidded 12 basis points to 4.32% while the ten-year bond yield fell 9 basis points to 4.62%.

The ECB also left interest rates unchanged, as expected, but its head Jean-Claude Trichet suggested that rate cuts may be unlikely in the months ahead. The German ten-year bund yield fell 11 basis points to 4.07%.

The US ten-year note yield fell 5 basis points to 3.82%.