Gilts rise with Bunds, catch up after UK fiscal data

LONDON: Gilts rallied on Thursday after surprisingly weak surveys of the euro zone and United States, and narrowed the gap versus Bunds after news of a large surplus in Britain's public finances and a solid auction.

The March gilt future settled 92 ticks higher at 116.08, in line with the equivalent Bund future.

"The market is obviously getting itself into a little bit of a concern about the fiscal situation in the UK and related topics, and today's data just took the edge off," said Nomura strategist Andy Chaytor.

Economists are divided on whether finance minister George Osborne will manage to meet his 2012/13 deficit-reduction goal. Data on Thursday showed some improvement in public finances in January, but possibly not enough to make up for heavy borrowing earlier in the tax year.

Earlier this session, the UK Debt Management Office sold 2.25 billion pounds of 2022 conventional gilts carrying a coupon of 1.75 percent, which attracted a strong cover ratio of 2.25, compared to a ratio of 1.69 the last time it was sold.

"It wasn't a surprise that it was well-received given that it was pretty small for a 10-year sale, but I think that has given the market added impetus," said Lloyds strategist Eric Wand.

Ten-year gilt yields fell 9 basis points to 2.105 percent, with their spread versus equivalent Bund yields 2 basis points tighter at 52 basis points.