21 MAY 2003

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Eurobonds retreat, eurobourses rally

European government bond prices retreated slightly in yesterday’s early trade, having rallied sharply in the past few sessions.
Meanwhile, stock markets recouped some of Monday's losses and the US dollar stabilised. On Monday, the euro-dollar hit levels not seen since the launch of the single currency in 1999.
In the eurozone, French first-quarter gross domestic product exceeded expectations with a 0.3 per cent rise from the previous three months. This contrasts with slight declines in German, Dutch and Italian growth data for the same period.
Given this, and the euro's rapid rise, the pressure on the European Central Bank to ease monetary policy at its June meeting is intensifying.
Yesterday, two-year schatz yields rose 4.6 basis points to 2.188 per cent, while 10-year yields added 4.4bp at 3.788 per cent.
In the UK, April inflation figures came in slightly below expectations, but the gilt market was driven by losses on the US Treasury market overnight.
The underlying inflation rate remained at 3.0 per cent, defying expectations that it would rise.
Two-year gilt yields added 5bp at 3.300 per cent, while 10-year yields rose 3bp to 4.114 per cent.
Japanese government bonds regained ground lost in the previous session as demand was boosted by a successful long-bond auction, together with a Bank of Japan decision to loosen monetary policy.
The yield on the benchmark 10-year JGB fell 2.5 basis points to 0.585 per cent having risen three basis points on Monday following the state bail-out of Resona Bank.
Analysts said strong demand for 30-year JGBs at a finance ministry auction showed the market had decided the government's intervention to save Resona would not herald similar moves with other banks, leaving the low interest rate environment unchanged.

Copyright © Newsworks Ltd. Malta.
Editor: Saviour Balzan
The Business Times, Newsworks Ltd, 2 Cali House, Vjal ir-Rihan, San Gwann SGN 02, Malta
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