European govt bonds slip lower in late London trade
European government bonds slid in late London trade as investors decided to take their profits amid a better performance on stocks, dealers said.
The bond markets are losing a little of their safe-haven appeal as stock markets stabilise, said Audrey Childe-Freeman, economists at CIBC World Markets.
"We are seeing some consolidation trading but activity is extremely quiet," she said.
Earlier, the Bundesbank's monthly report and Q2 GDP weak estimate failed to revive interest in fixed income assets.
"In theory the Bundesbank's prudent view on growth should have helped bonds but it hasn't," said Childe-Freeman.
This, she said, highlights the fact that bonds' direction continue to be set by stock markets' performance.
Against this backdrop, the European single currency failure to make some headway added to the negative sentiment.
On the economic news front, the euro zone harmonised index of consumer prices remained below the 2% ceiling set by the European Central Bank for the second consecutive months.
The HICP fell 0.2% in July from June and was up 1.9% year-on-year, as forecast in the early or "flash" estimate of July 31.
Meanwhile core inflation - excluding energy, food, alcohol and tobacco - was down 0.1% from June and increased 2.4% year-on-year, against a rise of 2.5% in June.
With inflation remaining below the 2% ceiling, the ECB can afford to hold its monetary policy for a while, said Childe-Freeman.
"This was already priced into the market, hence the lack of reaction," she said.
This view was echoed by Nick Mirtchev, economist at the HBOS Treasury Financial Services. "Today's inflation data failed to excite a reaction."
The fact that core inflation is easing is encouraging in view of the softer global economic outlook. "However, the outlook is for the ECB to keep its monetary policy on hold until the end of the year, and inflation has not really been a key force behind bonds' movement," he said.
US Treasuries fell on Friday on profit taking, which is undermining European bonds today, said Mirtchev.
"Stocks performance is the dominating force," he said.
In the UK, gilts fared better than their European peers in the absence of economic data to trade on.
ISSUE PRICE CURRENT CHANGE
at YIELD ON
3.45 pm (pct) CLOSE Sept euribor future (Liffe) 96.515 dn 0.005 GERMANY Sept euro bund future (Eurex) 110.32 dn 0.38 5.00% 2011 govt bond 103.08 4.60 dn 0.24 FRANCE 5.00% 2011 govt bond 102.34 4.69 dn 0.21 UK Sept gilt future 115.39 dn 0.04 9.00% 2011 govt bond 102.48 4.67 dn 0.04 Dec short sterling future 95.98 unchanged ITALY 5.25% 2011 govt bond 101.65 4.84 dn 0.16 SPAIN 5.40% 2011 govt bond 101.64 4.79 dn 0.196 NETHERLANDS 5.00% 2011 govt bond 102.03 4.73 dn 0.20 BELGIUM 5.00% 2011 govt bond 101.47 4.81 dn 0.18 DENMARK 6.00% 2011 govt bond n/a GREECE 5.35% 2011 govt bond 102.32 4.941 dn 0.33
