LONDON: British government bonds surged on Wednesday, pushing 30-year yields to their lowest in nearly four months, on the back of global economic worries and opinion polls showing a greater chance of a vote to leave the European Union on June 23.
Benchmark 10-year gilts enjoyed their strongest one-day gains in four weeks as yields dropped more than 6 basis points to 1.37 percent by 1400 GMT, while 30-year yields touched their lowest since Feb. 11 at 2.160 percent.
The gains came despite lacklustre demand at a sale of 2.75 billion pounds ($3.97 billion) of the benchmark 5-year gilt , which attracted bids worth just 1.60 times the amount on offer, the weakest investor appetite since March 2 for a conventional gilt.
"Risk appetite is clearly waning," said RIA Capital Markets fixed income strategist Nick Stamenkovic.
"We've had two or three opinion polls basically showing a swing back towards Brexit. That poses downside risks to the UK economy and increases the risk the Bank of England may be forced to cut rates."
Sterling hit a two-week low against the US dollar earlier on Wednesday after both a telephone and an online poll from ICM on Tuesday showed leads for the "Out" campaign.
A YouGov poll on Wednesday pointed to a dead heat.
German government bonds also rallied strongly as European share prices dropped 1 percent on world growth worries exacerbated by weak Chinese and euro zone factory numbers.
Gilts outperformed, with the yield premium 10-year gilts offer over Bunds tightening by more than 4 basis points to a two-week low of 124.3 basis points.
BoE Governor Mark Carney has said a vote to leave the European Union would put Britain at risk of recession, push up inflation due to a weaker currency, and said that it was unclear whether rates would need to rise or fall in response.
Financial markets view Brexit as increasing the chance of a rate cut to prop up growth. If Britain votes to stay in, most economists think the BoE is likely to raise rates early next year.
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