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Date: Monday 02 Jun 2008

LONDON (ShareCast) - Gilts moved higher today as equity investors took fright at the Bradford & Bingley capital injection and profits warning.

A downturn in the UK Purchasing Managers index, as calculated by the Chartered Institute of Purchasing and Supply and NTC Economics, also boosted sentiment, with the index falling more sharply than expected, to 50.0 in May, from a revised 50.8 in April.

The yield on the benchmark 10-year gilt fell 3 basis points to 4.96%.

Banking concerns were also moving the US market, after US Treasury Secretary Henry Paulson issued a downbeat statement over possible recovery from the current financial crisis, saying it will be months before the problems end.

The continued decline in US manufacturing also boosted demand for government fixed income securities. The Institute for Supply Management’s factory activity index for May fell for the fourth consecutive month, with a reading of 49.6; a value below 50 indicates a contraction.

The yield on the 10-year Treasury declined 6 ticks, as did the yield on the 10-year bund in Europe, with the former now showing a yield of 4% and the latter a yield of 4.34%.

European government bonds rose as investors baled out of equities, though gains were trimmed after the Royal Bank of Scotland’s manufacturing index fell less than expected to 50.6 in May, from 50.7 in April.

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