Bonds round-up: Bonds give way to equities
Gilts fell back today, after a surprisingly upbeat survey on the UK housing market from mortgage lender Halifax.
UK house prices rose by 1.3% in December, surprising analysts who had forecast a 0.5% drop following three successive monthly falls.
The latest survey from Halifax owner HBOS revealed the three-month rate of inflation climbed 5.2% on a year ago, with the average price of a home in the UK up by £11,759 over the year to £197,039.
The bank believes sound economic fundamentals will support house prices this year, although they are expected to be flat in 2008.
The Halifax survey conflicts with the results of a similar survey by the UK's biggest building society, Nationwide, which last month reported UK house prices dipped 0.5% in December after sliding 0.8% the previous month, though prices were still 4.8% higher than in December 2006.
Nevertheless, the Halifax report may ease the pressure on the Bank of England to push through an interest rate cut this week, though, conversely, weak retail sales in December may point to a need to spark the economy.
Retail sales in December grew at the slowest pace for the three years and could move into negative territory in 2008.
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The latest data from the British Retail Consortium showed like-for-like sales across the sector rose by only 0.3% in December, nearly three times lower than the most prudent City forecast.
Total sales rose 2.3% year-on-year, also the weakest gain since March 2006, when sales were affected by the timing of Easter.
As prices fell back, the yield on the 10-year gilt rose 4 basis points to 4.45%.
In other news, the Debt Management Office announced that it is going to auction £725m worth of the 0.75% pct index-linked 2047 gilts on Jan 17.
In the US, Treasury notes weakened as equities commandeered the spotlight. The yield on the 10 year Treasury note rose 5 basis points to 3.88%, as money market rates eased, reflecting efforts of the world's major central banks to drive down inter-bank lending rates.
The National Association of Realtors' index of pending home sales fell 2.6% to 87.6 in November, following a revised 3.7% gain in October, but this had little effect on bond prices, as the deterioration in the US housing market is largely already figured into prices.
European bonds were similarly friendless, despite weaker than expected retail sales in the euro zone in November. The yield on the 10-year bund climbed 4 basis points to 4.16%.
