LONDON: Gilts settled near a one-month low on Wednesday, spurred by Bank of England minutes, and tracked Bunds as Moody's qualified affirmation of Spain's credit rating renewed hopes for a bailout deal.
Minutes of the BoE's October meeting showed that policymakers were split over the need for more gilt purchases, and a drop in jobless numbers also fuelled doubts over the central bank's future action.
The December gilt future settled 95 ticks lower at 118.54, just off a one-month low of 118.50 hit earlier. The equivalent Bund future was 102 ticks down.
Gilts were following Bunds, Investec fixed-income analyst Elisabeth Afseth said.
"It's a bit of relief from the peripheral markets on the back of Moody's move and possibly in anticipation of something at the EU summit as well," she added.
Europe's leaders will meet on Thursday, with much of the focus expected to be on Spain and Greece's debt woes.
Risk appetite increased after Moody's affirmed Spain's credit rating, albeit on the assumption that Madrid would accept conditional help in reducing its borrowing costs.
There had been widespread fears that the agency would cut Spain's rating to junk, likely triggering a rush into perceived safer assets like gilts and German government bonds.
Earlier in the day, gilts underperformed Bunds, pressured by the BoE minutes and news of a record number of Britons in work.
"We still maintain that there will be an extension (of QE) in November," RBC Capital Markets strategist Sam Hill said.
"But I think given that there is open discussion recorded about the effectiveness of QE, there is a case for saying that gilts need to underperform a little to reflect the fact that medium-term expectations for QE are lower than they were."
Investors' high willingness to sell their gilts to the BoE at Wednesday's buyback and strong US housing starts data added to pressure on gilts.
Ten-year gilt yields rose 10 basis points to 1.917 percent, with their spread over Bunds steady at 28 points.
On Thursday, investors will watch British retail sales figures due at 0830 GMT for further clues on the state of the economy and the prospect of further stimulus.
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