European bonds gain, trading thin ahead of US speech

In London, European government bonds have regained losses in thin trading.

Dealers have attributed this to a pending speech by US Federal Reserve's Governor Ben Bernanke on 'an unwelcome fall in inflation'.

Investors will be seeking clues from Bernanke's remarks to either quash or confirm ongoing fears about deflation in the US.

The yield on the 10-year bond were one basis point higher than yesterday's closing level.

Analysts described trading conditions as extremely thin, with only pockets of sellers but no buyers in the market-place.

Kit Juckes, head of strategy at the Royal Bank of Scotland, has said markets were stabilising due to bond prices coming down in a straight line for several consecutive days.

European bonds continue to outperform their US counterparts, with the 10-year spreads between US Treasuries and bond up to 10 basis points today.

There are indications of euro zone inflation which will be gauged from preliminary figures out of Germany and Italy tomorrow.