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Treasuries lower on strong housing data

February 02, 2007 | Financial Times

US Treasuries were lower on Thursday after strong housing sector data outweighed manufacturing and inflation figures that were supportive of the bond market.

The Institute for Supply Management’s January manufacturing index was lower than expected at 49.3, initially pushing Treasuries higher and yields to 4.77 per cent, their lowest for more than a week.

The ISM data came after the core personal consumption expenditures price index, which excludes volatile food and energy prices, showed a modest 0.1 per cent increase in December.

The inflation data lent support to the US Federal Reserve’s reassuring comments on Wednesday that accompanied its decision to leave interest rates steady at 5.25 per cent.

However, unexpectedly strong data on an index of pending home sales – which rose 4.9 per cent in December – restrained the market. The reading followed a 0.3 per cent dip in November.

By late afternoon in New York, the yield on the 10-year bond was 2.5 basis point higher at 4.839 per cent. The two-year note yield added 3.7bp to 4.962 per cent.

UK gilts were under pressure after an unexpectedly strong manufacturing survey. The 10-year gilt was yielding 5.008 per cent, up 2.9bp. The yield on the two-year gilt added 1.7bp to 5.494 per cent.

Separately, UK government bond dealers and investors have asked the Treasury and the Debt Management Office to keep bond issuance skewed towards longer-dated gilts in the coming fiscal year, the minutes from the annual consultation meeting showed.

Eurozone government bonds were mixed, with the yield on the 10-year Bund up 0.5bp at 4.100 per cent and the yield on the two-year Schatz 0.6bp lower at 3.951 per cent. Robust appetite for long-dated securities was apparent in Europe, where France raised ?5.485bn with the sale of 10-year, 30-year and 50-year bonds. The long-dated paper attracted very strong demand.

Prices fell and yields rose on Japanese government bonds, responding to a rise in the Nikkei 225 to a nine-month closing high. The yield on the 10-year inched up 1bp to 1.715 per cent.

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