LONDON: British government bonds inched higher in early trade on Wednesday, eyeing a sale of 10-year German bonds later in the session for direction after a week in which yields have stabilised following a new year sell-off.
Strategists predict a weakening of longer-dated gilts in comparison with benchmark 10-year paper, as markets brace for a syndicated issue at the end of the month of bonds maturing in 2044.
The weight of supply is also expected to weigh broadly on the market in coming weeks in the absence of further bond-buying by the Bank of England, which completed its last round of quantitative easing in October.
"The end to QE is not a new theme, but it has yet to develop," RBS analysts said in a morning note to clients.
"How well the market handles the digestion of duration in the absence of Bank of England buybacks remains a key theme for the coming months."
March gilt futures inched up 10 ticks from the previous close to 117.08 by 0911 GMT, in line with a move for Bund futures which they often track.
Britain will sell 2.75 billion pounds ($4.42 billion) of gilts in two auctions this month and it will also hold a syndicated sale in the week beginning on January 28.
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