U.K. GOVERNMENT BONDS PLUMMET WITH U.S. ISSUES
The U.K. Government bond market closed
showing severe losses ranging to almost 1-1/2 points as sharp
falls for U.S Treasury bonds resulting from pronounced dollar
weakness exacerbated existing uncertainty, dealers said.
    Selling was described as relatively modest, although very
few buyers appeared to take up the slack. Much of the momentum
was derived from the futures market, where a high 33,074 lots
were traded in the long gilt June contract.
    The Treasury 13-1/2 pct stock due 2004/08 closed 1-7/16
point lower at 135-20/32 stg pct while the Treasury 10 pct due
1991 ended at 105-12/32 for a fall of 1-3/16.
    Dealers noted that market confidence had already been at a
low ebb, with much of the recent impressive rise whittled away
last week as investors reacted nervously to opinion polls
showing unexpectedly strong gains for the centrist
Liberal/Social Democratic alliance.
    The market had been sustained in large part during its
recent rally by a virtual conviction that the ruling
Conservative party would first call and then win a general
election early this summer.
    However, advances credited to the alliance last week have
cast doubt on both assumptions.
    "Turnover in the cash market has actually been quite small,"
one dealer said, adding that price movements had been very
volatile at times.
    After losing ground heavily in the Far East in tandem with
the flagging dollar, U.S. Bonds fell further in London trading
but showed some signs of recovery late in the U.S. Morning as
the dollar steadied a little against the yen. The latest period
of weakness for the dollar has accentuated fears that currency
risk might induce Japanese investors in particular to undertake
dramatic reductions in their portfolios of U.S. Treasury
issues.
    Dealers noted that early strength in the index-linked
sector of the market, which had enabled the Government broker
to supply some of both index-linked stock tranches announced on
Friday, had soon fallen prey to the general depression
affecting gilts.
    The Treasury 2-1/2 pct index-linked stock due 2020 closed
just under one point lower at 100-11/32 stg pct.
 REUTER
