B] Europe Credit Review: Euro weakness undermines bond mkt's gains
Updated Mon 6/11/2001 12:50 EDT
By James Muthana London, June 11 (BridgeNews) - European bonds traded sideways on Monday, as a thin news schedule meant the market never really took off. Early gains on the back of weak economic data were given up later in the day as the euro fell back and Dallas Federal Reserve Governor Robert McTeer said that a U.S. recession was unlikely. * * * European bonds retreated as the euro fell to 0.8414 U.S. dollars, its lowest level since November. Late on the euro was trading at 0.8426, almost a cent below its early high of 0.8538. The weakness of the euro caused the short end of the euro-zone bond curve to under-perform. The yield on 2-year paper ended at 4.31%, unchanged on the day, while the yield on 10-year paper was down 2 ticks at 5.04%. The strength of the dollar followed relaxed remarks from Robert McTeer. McTeer said that the U.S. economy is not likely to slip into recession but that second-quarter growth "probably won't be strong." Speaking to the Mid-America Regulatory Conference, McTeer said that market-based measures of inflation are benign. ( Story .15897 ) Early on, weak economic data bolstered European bond markets. Spanish April adjusted industrial output fell 1.5% from a year ago, while the output index was up 0.2% from one year ago. Industrial output had been expected to weaken for the year, but a BridgeNews survey had forecast only a drop of 1%. A rally in euro-one debt instruments early on was linked by market participants to an article in the U.K. Financial Times (FT) that leading European research organizations believe euro-zone economic growth will grow at a rate that below the European Central Bank (ECB's) target range of 2.0-2.5%. European Commission President Romano Prodi said there is no need to re-negotiate the Nice Treaty after the Irish "No" vote in their referendum on the issue. Prodi reiterated his commitment to EU enlargement by 2004. Dresdner Kleinwort Wasserstein believe that lower close on the September Bund last week combined with a "dark cloud reversal signal" are both bearish signals, in this week's debt roundtable. The view is slightly at odds with that of BNP Paribas, ABN and HSBC who are all bullish about the September Bund in the short term. In the longer term all agree that the outlook for the Bund future is bearish. (Stories .272 and .359) U.K. May producer input and output prices were both slightly stronger than Forecast, with this attributed to higher crude oil prices by the Office of National Statistics. Output prices rose 0.3% on in May and 0.6% on year, compared with forecasts for a 0.2% monthly increase and 0.4% yearly increase. Activity in U.K. debt futures was limited by another failure of the LIFFE Connect system. Investments in manufacturing industries are seen growing by a modest 2.0% in 2001 according to a survey by Statistics Sweden. (Story .13201) Players are waiting for May inflation, due on Thursday. Swedish inflation is seen remaining around 2.8% in May, similar to the April figure. (Story .12451) This should prevent the Riksbank from easing monetary policy. The Swedish 10-year bond yield is 3.5 basis points lower at 5.38%, widening the spread versus Germany 1 basis point to 34 basis points. Belgium's Tresor swapped 150.7 million of its December 2001 Olo into 5 other maturities at a switch auction early in the afternoon. --The September Bund was up 13 ticks at 106.71 at 1625 GMT --The June Notional was up 13 ticks at 88.23 at 1625 GMT --September Gilts settled up 27 ticks at 113.30 --U.S. September bond futures were up 29/32 to 101 5/32 at 1625 GMT --U.S. September T-note futures were up 17/32 to 103 23/32 1625 GMT |
