LONDON: Gilts fell in early trade on Wednesday, in line with German Bunds, after US politicians approved a deal to prevent steep tax hikes and spending cuts, boosting investors' risk appetite.
The United States narrowly missed a 'fiscal cliff' after the Republican-controlled House of Representatives approved a bill that will raise taxes on top US earners, fulfilling President Barack Obama's re-election pledge.
"With new legislation to avert the 'cliff' and with the 'sequester' postponed by two months, the knee-jerk market reaction is likely to be 'risk-on', with higher yields and with mid-maturities likely to suffer the most," said Lloyds strategists.
At 0838 GMT, the March gilt future was 83 ticks lower at 118.09, underperforming the equivalent Bund which was 106 ticks lower on the day.
Investors will look towards British manufacturing PMI data, at 0928 GMT, which economists polled by Reuters expect to remain unchanged at 49.1 in December. PMI surveys on construction and services will also be released later in the week.
On Thursday, Britain's Debt Management Office will auction 3.75 billion pounds ($6.05 billion) of 1 percent 2017 gilts.
Center>Copyright Reuters, 2013