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Bonds round-up: Treasuries rise after inflation data

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Date: Friday 13 Jun 2008

LONDON (ShareCast) - US treasuries made ground today following US consumer prices data which showed inflation accelerating faster than expected.

The US Consumer Prices Index rose 0.6% in May, its largest rise since November 2007, after advancing 0.2% the previous month, the Labor Department revealed.

Economists had been expecting a rise of 0.5% in May but the difference between the official figures and expectations was not wide enough to resuscitate fears of an interest rate hike by the Federal Reserve.

The yield on the ten-year Treasury note fell 3 basis points to 4.19% while two-year yields – more sensitive to short-term inflation and interest rate trends – tumbled 13 ticks to 2.91%.

Over in Europe, however, government bonds were eschewed as interest rate fears lingered. The effect on inflation of the seemingly inexorable rise in oil prices had investors contemplating not one but possibly two or more rate rises by the European Central Bank before the end of the year.

The yield on the benchmark 10-year bund was up 3 basis points to 4.63%.

UK government bonds were weaker still, with the 10-year gilt’s yield jumping 8 ticks to 5.24%.

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