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Bonds round-up: King's comments hammer gilts

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Date: Thursday 15 May 2008

LONDON (ShareCast) - Gilts tumbled following Bank of England governor Mervyn King's gloomy comments on inflation yesterday.

King suggested inflation could rise above the 3% market for some time, prompting may bond traders to assume that it is the end of interest rate cuts this year at least.

The yield on the two-year gilt rose to a six-month high of 4.78%, adding nearly 8 basis points. Benchmark 10-year gilts also tumbled with the yield up by nearly three points to 4.84%.

In Europe, bonds also had a poor day on inflation and rate cut worries. Two year bund yields jumped by more than seven basis points as eurozone GDP rose a better than anticipated 0.7% in the first quarter from the previous quarter, helped by strong growth in Germany. Ten year bund yields rose by nearly four basis point to 4.2%.

US bonds fared better on a weak New York Fed manufacturing report and lower US industrial production. The yield on the two-year note fell 5 basis points to 2.46% while benchmark 10-year yields fell 4 basis points to 3.87%.







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