LONDON: British 10-year government bond yields fell to their lowest level in 16 months on Monday on growing expectations that the Bank of England will delay a first interest rate hike until deep into 2015.
Yields on 10-year debt were down more than 3 basis points at 2.18 percent at 0923 GMT, adding to last week's 19-basis-point drop, which was the largest weekly decline in more than a year. Earlier on Monday the yield was as low as 2.179 percent, its lowest since June 2013.
Gilts continued to outperform German government debt with the yield spread between the 10-year gilt and the equivalent German Bund tightening by 3 basis points to fall below 130 basis points, its narrowest since early June.
December gilt futures hit a contract high of 115.68, up 44 ticks on the day.
Britain's economy has performed much more strongly than Germany's and the euro zone as a whole.
But the Bank of England is not expected to start raising interest rates quickly because wage growth remains depressed, reducing the risk of a bounce in inflation, and as the weak euro zone economy poses risks to Britain's strong economic growth.
Simon Peck, a strategist at RBS, said investors had scrambled last week to buy gilts after previously betting on a UK interest rate rise in early 2015.
Data this week is expected to show continued weak pay growth and low inflation, which would add to the sense that the Bank of England is comfortable keeping rates on hold.
"It's tough to see any real catalyst for a reversal of what we have seen and policymakers have been pretty quiet in terms of their rhetoric and communication of late so we are just seeing this gradual grind continue," Peck said.
Data on Wednesday is expected to show that British average weekly earnings, including bonuses, rose a meagre 0.7 percent in the three months to August, from the same period last year. That would be half the rate of annual inflation, which analysts forecast at 1.4 percent in August. Inflation data is due out on Tuesday.
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