UK 10-year gilt yields hit 2015 high ahead of election

LONDON: Ten-year British government bond yields surged to their highest level this year on Tuesday, two days before voters go to the polls in the hardest-to-predict national election since the 1970s. Robust US non-manufacturing data caused gilts to extend losses made earlier in the day when traders were catching up with global bond price falls from Monday, a public holiday in Britain.

Ten-year gilt yields peaked at 1.989 percent at 1416 GMT, more than 14 basis points up from Friday's close and their highest level since Dec. 8.

Twenty- and 30-year gilt yields saw similar rises on Tuesday, while the increase for shorter maturities was more modest.

Ten-year yields have risen by more than 40 basis points in the last two weeks, after touching an all-time low of 1.337 percent on Jan. 30.

"Overall sentiment is pretty bearish across bond markets," said Nick Stamenkovic, a market strategist at Edinburgh-based RIA Capital Markets.

The stronger-than-expected US ISM survey bucks a recent trend of soft data and raises the chance that the Federal Reserve will increase interest rates sooner rather than later, which is likely to depress bond prices globally.

Stamenkovic said the impending election had reduced liquidity in the gilt market, and played down the idea that pre-election jitters were the main factor behind the sharp rise in yields.

Opinion polls suggest no one party will get an outright majority, potentially leading to a lengthy period of coalition negotiations.

Sterling strengthened against the dollar on Tuesday, suggesting investors' risk aversion had not increased in the immediate run-up to the election, Stamenkovic said. Figures released by the Bank of England on Friday showed foreign investors bought a record 28.8 billion pounds ($43.75 billion) of gilts in March, outweighing net sales in January and February.

The yield premium which 10-year gilts offer over Bunds stood at 146 basis points at 1530 GMT, close to levels on Thursday, the last time markets in Britain and Germany were both open.