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Date: Tuesday 03 Jun 2008

LONDON (ShareCast) - US treasuries fell back today on comments by US Federal Reserve boss Ben Bernanke to the International Monetary Conference in Barcelona, Spain.

Bernanke said the Fed would “continue to carefully monitor developments in foreign exchange markets,” as it was mindful of the “implications of changes in the value of the dollar for inflation and inflation expectations.”

The remarks were interpreted as indicating a shift in the Fed’s priorities away from economic stimulus and signalled the probable end to the Fed’s rate cutting programme.

The yield on the 10-year Treasury note rose 4 basis points to 4%.

In the UK and the rest of Europe, government bonds were also on the slide.

In the UK, gilts were out of favour as the equity market regained its poise. The yield on 10-year gilts moved back above the yield on two-year gilts on expectations that the Bank of England will seek to boost flagging growth through a rate cut later this year.

The yield on the 10-year gilt rose 8 basis point to 5.04%, while the yield on the two-year gilt rose 4 ticks to 5%.

European bonds turned south after Gross Domestic Product (GDP) in the eurozone rose 0.8% in the first quarter, compared with a provisional estimate of a 0.7% increase. Investment rose 1.6% in the first quarter of the year, registering the biggest rise since the second quarter of 2006.

The yield on the benchmark 10-year bund rose 7 basis points to 4%.

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