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Bonds round-up: Weak data lifts bonds

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Date: Thursday 03 Jul 2008

LONDON (ShareCast) - Bonds rallied across Europe and the US as weak economic data suggested US and UK authorities may hold off increases in interest rates.

Non-farm payrolls for June fell by 62,000, more than forecast, and matched an upwardly revised figure for May. The jobless rate remained at 5.5%.

More evidence of the weakness of the US economy came from the Institute for Supply Management's index of service businesses, which fell to 48.2, the lowest since January, from 51.7 in May.

Yields on the two-year Treasury notes fell 5 basis points to 2.53% though benchmark 10-year yields were little changed at 3.97%.

Eurobonds rose despite the European Central Bank upping its benchmark rate to 4.25% as ECB president Jean-Claude Trichet hinted that this latest rise may be it for a while. Trichet said he isn't "pre- committed" to raising interest rates further to combat inflation.

The yield on the two-year bunds tumbled 15 basis points to 4.47% with benchmark 10-year yields 8 basis points lower at 4.56%.

Yields were also on the way down in London after data on the services esctor suggested the UK economy is heading for a recession. Ten-year gilt yields fell 1 basis point to 5.04%.

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