Bond investors anticipate interest rate cuts in Europe

Government bond markets in the eurozone and in the UK both showed the effect of investor anticipation of interest rate announcements scheduled for Wednesday.

Expectations were that rates would remain the same in both regions, at 2 percent in the eurozone and 4.75 percent in the UK. However, while hopes for a eurozone rate cut are diminishing as weakness in the euro makes a cut seem unnecessary, slowdowns in the growth of the UK economy are making the chances of a rate cut there by the end of the year seem like more of a possibility.

In the eurozone, the 2-year Schatz gained 0.3 basis points to yield 2.168 percent and the 10-year Bund was up 1.1 basis points to yield 3.222 percent. Yields on UK gilts were mixed as the 2-year gilt lost 0.5 basis points to yield 4.142 percent, while the 10-year gilt gained 2.1 basis points to yield 4.284 percent.

In Japan, the 10-year Japanese government bond was up 1 basis point to yield 1.295 percent, at least partly on concerns that the vote by the lower house of the Japanese parliament in favor of privatization of the post office could lead to political instability.

Meanwhile, conflicting data left the market for US Treasury bonds not sure where to go on Wednesday. One survey showed a strong service sector in June while another report implied that job layoffs had gone up during the month. This brought attention to the monthly employment data to be released on Wednesday.

At mid-day in New York, the 2-year Treasury bond had retreated 1.7 basis points to yield 3.773 percent, while the 10-year bond gone down by 3.3 basis points to a yield of 4.078 percent.

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