LONDON: British government bonds fell on Thursday, extending their underperformance against German Bunds, a day after finance minister George Osborne said he would miss a key debt target.
Late on Wednesday, after the gilt market closed for the day, rating agency Fitch said Osborne's announcement that he would need an extra year to put Britain's public debt on a downward path damaged the country's fiscal credibility and put its triple-A credit rating at risk.
"Missing the target weakens the credibility of the UK's fiscal framework, which is one of the factors supporting the rating," Fitch said.
At 1054 GMT, the March gilt future was 23 ticks lower at 119.20, underperforming the equivalent Bund which was 6 ticks lower.
Osborne said on Thursday Britain's credit rating was important but was not the only measure affecting borrowing rates, which have fallen to historic lows.
RBC strategist Sam Hill said other factors were also weighing on gilts.
"I think the Fitch comments aren't really too much of a surprise," Hill said. "That risk of the credit action may weigh on markets, but we know that it's going to be after the budget (in March) before either Moody's or Fitch make their decision."
Ten-year gilt yields rose 1 basis point to 1.79 percent , while 30-year yields climbed 3 basis points to 3.15 percent.
Buried in the British finance ministry's Autumn Statement was also a note that "the Department for Work and Pensions will consult on providing the Pensions Regulator with a new statutory objective to consider the long-term affordability of deficit recovery plans to sponsoring employers".
"I think that's why you're seeing the weakness concentrated in the long end of the curve," Hill said.
"We now think that 30-year gilt yields could go to 3.5 (percent), so we think this weakness can continue led by the long end," he added.
Earlier in the session, gilts shrugged off data which showed Britain's goods trade deficit widened more than expected to 9.539 billion pounds in October.
The Bank of England will announce its December monetary policy decision at 1200 GMT.
None of the economists polled by Reuters expect a change to interest rates or a resumption of quantitative easing asset purchases.
A key focus for markets will also be a European Central Bank press conference at 1330 GMT, for further clues on the bank's policy objectives next year and the outlook for the euro zone.
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