Oil pushes bond market expectations

Yields on government bonds in the eurozone were up on Monday as crude oil prices reached record highs.

The 2-year Schatz remained stable at a yield of 2.180 percent, while the 10-year Bund was yielding 3.312 percent, up 2.7 basis points.

Rising energy prices had been helping bond prices in the region recently, as the high cost of oil is more likely to weaken the economy than to send inflation up, but technical issues took over on Monday to cut bond prices.

Meanwhile, at mid-day in London the price of UK gilts fell and yields were up as investors decided that interest rates would not be falling this year after all.

This opinion was fueled by the news that government borrowing was up to record levels.

Borrowing was £8.735 billion in May, while it had been expected to be only £7.0.

In addition, the Bank of England said that the UK money supply had risen 1.7 percent in May after rising 0.7 percent in April.

Yields on the 10-year gilt rose 3.2 basis points to 4.425 percent while 2-year gilts were yielding 4.346 percent, an advance of 2.9 basis points.

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