LONDON: British government bonds bounced on Thursday in a broad bond-market rally after US economic data raised fears about the health of the world's leading economy.
Earlier on Thursday, Britain auctioned 2.5 billion pounds ($3.8 billion) of 2044 gilts, drawing bids totalling double the amount on offer and a 3-tick price tail, half the tail when it last sold the gilts in April.
June gilt futures settled 54 ticks higher at 118.07, having bobbed around the 117.60 level in the first half of the session before the US data came out showing a sharp rise in US jobless claims, home-building starts tumbling and a gauge of underlying inflation pointing to weak demand.
British debt lagged German Bunds, which were 67 ticks up on the day, a day after the Bank of England struck a rare upbeat note on the economy, driving gilts into the red.
For the first time in years, the central bank predicted that Britain's economic growth would be faster and inflation lower than it expected three months earlier.
The bank noted that monetary policy remained "highly stimulatory" and gave no indication that more quantitative easing - so far in the form of gilt purchases - was on its way.
Demand at Thursday's gilt auction was partly supported by investors' positioning for a syndication of a 50- to 60-year gilt in the second half of June, said Jason Simpson, UK rates strategist at Santander.
"The auction has gone well," he said.
In preparation, some would have sold part of their ultra-long gilt holdings to buy shorter-dated paper, with the 2044 auction a good opportunity to do so.
Index extensions linked to June coupon payments also boosted appetite for long-dated gilts, such as the 2044 paper, Simpson said. The tight price tail in particular showed buyers were willing to pay a high price for the bonds, he added.
This was the last sale of conventional gilts until June 11, and no further supply of long gilts is due until the syndication, also encouraging buying on Thursday.
Ten-year yields fell 6 basis points to 1.862 percent. The spread over Bunds was a touch tighter at 53.5 basis points.
Comments
Comments are closed for this article.