European govt bonds off highs as US equities find support
European government bonds were off highs in late trade as US equities tiptoed back into positive territory, dealers said.
"Investors are waiting to see what happens with US equities," Nick Mirtchev, bond analyst at HBOS, said.
However, the short end remained well-bid.
"Today's fluctuations in the bond market are representative of the volatile stock markets," Mirtchev said.
Although equities have risen, they won't run away in either direction, he added.
Bonds were also weighed down by an unexpected upward revision in the University of Michigan index of consumer sentiment index, which sparked a rally in US equities, dealers said.
"Equities were already up and the Michigan result gave them an extra kick," Will Rugg, senior currency strategist at Standard & Poor's, said.
The University of Michigan consumer sentiment index rose to 88.1 in the final July reading from 86.5 in the preliminary reading, market sources said.
Mirtchev said the Michigan reading may have attributed to the rally in equities, but noted they were higher prior to the release.
Meanwhile, in the UK gilts were mixed, also tracking moves in US and European equities, after robust UK second quarter GDP data suggested that the malaise in UK growth has bottomed out driven by a recovery in the manufacturing sector.
The short end was hit by signs of positive growth in the UK economy, as it increases expectations of a Bank of England interest rate hike.
Economists at Barclays said that the GDP numbers reduce the chances of a rate cut, which some have begun to anticipate due to the turmoil in the global markets.
"The 0.9% preliminary estimate of Q2 GDP growth is a strong number, which should keep the MPC from being panicked into an unnecessary rate cut," they said in a note, following the release of the data.
