LONDON: Short-dated British government bonds fell on Wednesday, the day before Scots go to the polls to vote on whether to end their centuries-old union with the rest of the United Kingdom.
Volumes were thin, as traders were reluctant to make big bets on the outcome of the referendum, which remains too close to call. A series of opinion polls overnight showed a small majority of Scots favour remaining part of the United Kingdom, but this majority has narrowed markedly in recent weeks.
Five-year gilt yields touched their highest level since Aug. 28 at 1.835 percent, up 4 basis points, and two-year yields also rose the same amount on the day to 0.86 percent.
Prices for both gilts fell relative to 10-year gilts, whose yields were flat at 2.52 percent. Ten-year gilts' yield spread over Bunds was little changed on the day at 147 basis points.
Peter Goves, fixed income strategist at Citi, said the rise in short-dated yields probably reflected a bigger-than-expected fall in British unemployment, which dropped to 6.2 percent, its lowest in more than five years.
This potentially brings forward the date at which the Bank of England raises interest rates.
"The front end is susceptible to anything that might affect the first hike," he said.
However, Wednesday's labour market data also showed that wage growth - another indicator closely monitored by the BoE - remained extremely weak and minutes of the BoE's September Monetary Policy Committee showed that most policymakers remained firmly against tightening policy.
"Wage data remains very well behaved, so the chances of a rate hike before the year-end remain small," said Nick Stamenkovic, fixed income strategist at RIA Capital Markets in Edinburgh. "But the data today is of secondary importance to tomorrow's referendum."
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