LONDON: British government bond prices fell sharply on Tuesday and underperformed against German debt after the weakest gilt auction demand since June 2013.
Gilt yields jumped after investors offered bids worth only 1.35 times the amount on offer at an auction of 3.5 billion pounds ($5.38 billion) of the benchmark five-year gilt - the weakest demand since June 20 2013. "It's pretty disappointing.
The market was anticipating a pretty comfortable reception," RIA Capital fixed income strategist, Nick Stamenkovic, said. "But investors clearly aren't finding that part of the curve attractive right now," he said.
The five-year yield rose almost 2 basis points (bps)immediately after the auction result, and by 1156 GMT was up 5 bps on the day at 1.451 percent, hitting its highest since Dec. 29. Yields rose across all maturities, with 10-year yields rising to their highest since Feb. 20 at 1.839 percent.
Stamenkovic said a stronger-than-expected survey of construction managers had also put pressure on gilt prices. The premium that 10-year gilts offer over the equivalent German Bund widened by about 3 bps to 146 bps.
"Gilts are clearly underperforming Bunds, it's a reflection of the poor auction, but also the expectation that the next move for UK interest rates is likely up," Stamenkovic said.
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