BEIJING, March 12 -- European two-year government
notes posted their biggest weekly drop this year after the European Central Bank
signaled it will raise interest rates further.
Benchmark two-year notes fell by the most in four
months on Friday after the central bank lifted its refinancing rate to 3.75
percent and ECB President Jean-Claude Trichet said the day before that borrowing
costs are still "accommodative." Debt also fell last week as equity markets
recouped losses from the week before, crimping investor demand for the safety of
fixed-income securities.
"Trichet was very clear in his remarks that there
will be more interest-rate increases," Klaus Schruefer, an economist at SEB AG
in Frankfurt, told Bloomberg News. "Markets are being prepared for the
continuation of gradual rate increases and the certainty of another quarter
point step in June."
The yield on the benchmark two-year note, which is
the most sensitive to interest-rate expectations, gained 10 basis points to 3.94
percent in London last week, the most since the five days through December 8.
The price fell 0.15, or 1.5 euros per 1,000 euro
(1,312 U.S. dollars) face amount, to 99.73. Yields move inversely to prices. The
yield on 10-year bonds, which are more sensitive to inflation expectations, was
little changed in the week at 3.94 percent.
The decline in European bonds followed a government
report that showed employers in the United States added more jobs than expected
last month, and the unemployment rate fell.
The ECB's decision to raise rates "was taken in view
of the upside risks to price stability in the medium term," Trichet said at a
news conference in Frankfurt last week. "Given the favorable economic
environment, our monetary policy continues to be on the accommodative side."
Declines for bonds were tempered after Trichet said
"interest rates are moderate; last time I said they were low."
Futures trading shows investors added to expectations
the central bank will raise rates to four percent this year.
(Source: Shanghai Daily)
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