LONDON: Long-dated British government bonds suffered their biggest one-day fall in prices so far in 2014 on Monday after an increase in global investors' risk appetite and remarks by Bank of England Governor Mark Carney on interest rates.
Carney told the Sunday Times that the central bank could raise rates even if wages were still rising faster than inflation, which traders viewed as a shift in tone from comments in a news conference in Wednesday.
Last week Carney said the BoE would be closely looking at the prospects for wages before raising interest rates. Wage growth has been persistently weak in Britain, and most economists viewed this as a sign that interest rates were unlikely to rise this year.
Ten-year gilt prices tumbled on Monday, retracing the gains on Friday that had taken them to a one-year high after Ukraine said it had destroyed Russian armoured vehicles within its borders.
Ten-year gilt yields peaked at 2.428 percent at 1416 GMT, 10 basis points up on the day and on track for their biggest one-day gains since at least November 2013, according to Reuters data.
Ten-year gilts underperformed against German debt , with the spread between gilts and Bunds widening by 3 basis points on the day to 141 basis points.
"Globally there's been a little pick-up in risk assets," said Simon Peck, fixed income strategist at Royal Bank of Scotland, as European shares rose more than 1 percent.
"The market has also got itself into a confused state in terms of interpreting the real line of the BoE policy statement last week ... and is warming back up to a more balanced if not hawkish note from the minutes," he added.
The BoE publishes minutes of its Aug. 6-7 interest rate decision on Wednesday.
Earlier in the month, most economists polled by Reuters expected it to show a minority of policymakers supporting a rate rise, though a poll conducted late last week showed most economists now believe there was unanimity to keep rates on hold.
RBS however still thinks two of the nine members of the Monetary Policy Committee - external appointees Martin Weale and Ian McCafferty - backed a rate rise. Neither has spoken publicly since the decision.
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