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gilts-400LONDON: British gilts tracked German Bunds higher on Monday, after regional elections in Spain raised concerns over the country's political stability, boosting demand for safe haven assets.


At 0837 GMT, the December gilt future was 6 ticks higher at 119.48, broadly in line with the equivalent Bund , which was 16 ticks higher.


Core government bond markets were supported by the victory for separatists on Sunday in an election in Spain's Catalonia region. But they failed, however, to get the resounding mandate they need to push convincingly for a referendum on independence.


"Sunday's Catalonia regional election result is only likely to raise the political temperature in Spain," said Lloyds strategists.


"We expect the pressure to resume on Madrid once it is faced with competition for funds during the early part of Q1 next year. Ultimately we still see Spain requesting assistance from its euro area allies," they added.


Markets remained hopeful that euro zone finance ministers and the International Monetary Fund will be able to unfreeze a second bailout package for Greece on Monday.


"We still remain confident that the outstanding issues between the EU and the IMF, generally focused around the subject of Greek debt sustainability over a medium-term horizon, can finally be surmounted," said Lloyds strategists.


Ten-year gilt yields were steady at 1.84 percent. Their spread versus Bund yields was a touch wider at 41 basis points.


Copyright Reuters, 2012

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