EURO GOVT-Bunds lower as ECB seen hiking further

LONDON, April 8 (Reuters) – Bund futures opened lower on
Friday, resuming their recent downward trend after ECB President
Jean-Claude Trichet kept expectations for future interest rate
hikes alive following Thursday’s 25 basis points increase.

At 0603 GMT, the Bund future (FGBLc1: Quote, Profile, Research) was 22 ticks lower at
120.49. Ten-year Bund yields (DE10YT=TWEB: Quote, Profile, Research) were 2.7 bps up at
3.441 percent, while the two-year Schatz yield (DE2YT=TWEB: Quote, Profile, Research)
stood at 1.847 percent, up 2.5 bps on the day.

Trichet said the bank would “monitor very closely” risks to
inflation, phrasing which in the past has signaled a pause for a
month before another rate rise, although he softened the message
somewhat by stressing Thursday’s hike was not planned as the
first in a series of moves.
Markets fully price in a hike in July, with good chances for
it to happen in June.

“We had a bit or a relief rally yesterday but … they left
the door firmly open for a move in June,” one trader said.
Portuguese bonds are likely to be steady for now after a
brief rally earlier this week, with investors waiting to see
developments in negotiations for the terms of a bailout after
the caretaker government requested financial aid on Thursday.

Euro zone finance ministers will discuss on Friday how much
Portugal needs in terms of aid funds and what reforms it could
do in return, but no firm decisions were likely yet.
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Traders said political uncertainty ahead of a June 5
election will likely keep nerves stretched, though.
(Reporting by Marius Zaharia; Editing by Patrick Graham)

EURO GOVT-Bunds lower as ECB seen hiking further