LONDON: British government bonds reversed gains and short sterling futures weakened on Wednesday, with many traders surprised by the extent of the Bank of England's reluctance to counter a recent rise in market interest rates.
The minority of policymakers who in previous months had seen a compelling case for more asset purchases retreated from this position in September after signs of strengthening economic growth, a record of their last policy meeting showed.
And the Monetary Policy Committee chose not to repeat July and August's warnings that bond market yields were rising faster than growth data warranted - something the bank had previously highlighted was a risk to economic recovery.
December gilt futures erased modest gains after the release and then slid further to trade 55 ticks lower on the day at 107.47 by 1041 GMT.
Short sterling futures took a hit across the strip, trading 1 to 9.5 ticks lower on the day as investors nudged forward their expectations of the first rise in the BoE rate.
The December 2014 contract lost about 9 ticks in the wake of the minutes while the December 2015 short sterling future shed 12 ticks.
"(The minutes) were even more hawkish than people were looking for," said Andy Chaytor, strategist at Nomura. "The MPC are not going to be in a position to stop rates rising if the data remains strong."
However, market moves were tempered by investors' unwillingness to place big bets before the end of a key Federal Reserve meeting later on Wednesday.
The US central bank is expected to begin its long retreat from ultra-easy monetary policy by announcing a small reduction in its bond buying, while stressing that interest rates will remain near zero for a long time to come.
Ten-year gilt yields touched a session peak of 3.02 percent, its highest in a week. The spread over Bunds widened to re-test a three-year high above 100 basis points.
Longer-dated gilts outperformed short-dated paper, although - according to Chaytor - not as much as they should in a sell-off as investors braced for a syndicated sale of a new super-long inflation-linked bond due next week.
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