LONDON: British government bonds slumped to a 10-day low on Friday after a surprise fall in US unemployment to its lowest in nearly four years boosted investors' appetite for riskier assets.
Ten-year gilt yields rose 7 basis points on the day to 1.77 percent, and December gilt futures hit their lowest level since Sept. 25 at 119.80 before paring losses slightly to settle 66 ticks lower on the day at 119.64.
"Clearly it's been a very strong move, but so far it looks like we're moving pretty linearly with Bunds," said Shahid Ladha, a fixed income strategist at BNP Paribas.
"Looking at the payroll data itself ... on the surface it's pretty strong," he added.
The US unemployment rate sank in September to 7.8 percent from 8.1 percent the month before, even while the workforce expanded as Americans resumed the hunt for work.
After the data, long-dated gilts fell in price by more than short-dated ones. The 10-year gilts' yield spread versus Bunds was little changed on the day at around 25 basis points.
BNP Paribas said in a note to clients it expected 10-year gilt prices to rise, taking yields back down to 1.65 percent, and 30-year debt to underperform in the weeks to late October.
Next week, the UK Debt Management Office plans to hold two auctions for 1.75 billion pounds ($2.8 billion) of 2032 conventional gilts on Tuesday and 1.5 billion pounds of a new 0.125 percent 2024 index-linked gilt on Thursday.
BNP's Ladha said the 2024 bond would offer good value if it yields 25-30 basis points more than the 2022 index-linked gilt .
Finance Minister George Osborne will deliver a speech at his Conservative Party's annual conference on Monday, while Bank of England Governor Mervyn King addresses students at the London School of Economics on Tuesday night.
King's words in particular will be eyed closely for signs of whether the central bank will expand its programme of gilt purchases once it reaches its 375 billion pound target at the end of the month.
As for data, Tuesday brings official August trade and industrial production data as well as September housing market and retail surveys from the private sector.
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