Ten-year gilt yields hit seven-week high after hefty supply

LONDON: British government bond prices fell on Wednesday against a backdrop of hefty supply at home and abroad and limited investor risk appetite, taking 10-year yields to their highest level in seven weeks.

The UK Debt Management Office received solid demand at its sale of 3 billion pounds ($4.61 billion) of 2 percent 2025 bonds , in contrast to other recent auctions, but this came at a cost of a heavy discount built into the market in the hours before the sale.

Gilts briefly pared losses following the sale -- which broke a run of lacklustre conventional auctions with the strongest demand since Feb. 11 -- and also after disappointing U.S. economic growth data. However, both times they resumed their downward path, with U.S. Treasuries also joining the rise in yields.

Ten-year gilt yields peaked almost 15 basis points up on the day at 1.843 percent at 1511 GMT, tracking an upward move in Bund yields as Germany sought to offload 3 billion euros ($3.30 billion) of five-year debt.

At 1647 GMT they were set to close 14 basis points higher on the day. This was not far off a 14.7 basis-point gain last Wednesday, when Bank of England policy minutes prompted markets to price in an earlier rate interest rise by the central bank, driving the largest rise in gilt yields in six months.

"Risk appetite is quite soft today, but there's a big raft of paper hitting the market," said Jamie Searle, a fixed income strategist at Citi.

Searle said that with a closely fought British general election looming on May 7, which is unlikely to give any one party a clear majority, some investors would want to delay putting money into the gilt market.

"It's possible you could see a buyers' strike in gilts. Anyone who was looking to buy would be prudent to wait until after the election. It is likely we will see some underperformance in the next few days," he said.

The yield spread for 10-year gilts versus Bunds rose around a basis point on the day to 155 basis points, but against U.S. Treasuries gilts underperformed by around 3 basis points.