Thursday, 03 January 2013 14:34
LONDON: Ten-year gilt yields edged up to an eight-month high on Thursday ahead of the sale of five-year UK government bonds, with some analysts saying the extension of Wednesday's sharp falls in prices looked overdone.
Ten-year yields experienced their biggest jump since March on Wednesday on relief over a fiscal deal in the United States.
At 0856 GMT on Thursday they reached their highest level since May 4 at 2.002 percent, 1 basis point up on the day.
The March gilt future hit a contract low of 117.16, 19 ticks down on the day, a bigger drop than the roughly 5 tick fall seen on the equivalent Bund.
Gilts also underperformed on Wednesday, when data unexpectedly showed a pick-up in British manufacturing activity.
Some strategists doubted whether the fall in gilt prices would continue,
"Yesterday's relief sell-off in core markets seems to be somewhat of an over-reaction," Lloyds strategists said in a note. "Even though the vote averted the immediate pain of tax hikes on most US households, some key issues remain unresolved and focus will soon turn to fresh talks on raising the US debt ceiling."
President Barack Obama and congressional Republicans face even bigger budget battles in the next two months after a hard-fought "fiscal cliff" deal narrowly averted devastating tax increases and spending cuts.
Republicans, angry the fiscal cliff deal did little to curb the federal deficit, promised to use the debt-ceiling debate to win deep spending cuts next time.
The next focus for the gilt market will be the release of surveys of construction purchasing managers and the Bank of England's quarterly credit conditions at 0930 GMT, followed by the sale of 3.75 billion pounds ($6.05 billion) of 1 percent 2017 gilts.
Center>Copyright Reuters, 2013