LONDON: British 10-year gilts recorded their strongest one-day price gain in four weeks on Thursday, tracking German bond prices higher and pulling yields away from last week's six-month high after the IMF broke off talks with Greece.
Ten-year gilt yields dropped more than 7 basis points on the day to 2.05 percent by 1555 GMT, translating into the biggest rise in prices since April 14.
"Everything is in thrall to Bunds at the moment," said Marc Ostwald, fixed income strategist at ADM Investor Services International. Concerns about a lack of progress in Greece's discussions with the International Monetary Fund were again offering support to safe-haven bonds, he added.
The Fund raised the stakes in Greece's stalled debt talks on Thursday as its delegation broke off negotiations in Brussels and flew home because of major differences with Athens.
The surprise announcement came as the European Union told leftist Greek Prime Minister Alexis Tsipras to stop gambling with his cash-strapped country's future and take crucial decisions to avert a devastating default.
Thirty-year gilts also rallied strongly after solid demand at an auction of 2 billion pounds ($3.10 billion) of the bond by the UK Debt Management Office.
Some strategists had feared the sale might suffer from weak liquidity.
The 30-year bond sold at an average yield of 2.863 percent, and attracted bids worth 1.58 times the amount on offer, the highest demand in three months for a conventional British government bond.
DMO chief executive Robert Stheeman was reported on Monday as saying that a failed bond auction was a risk in Britain due to volatile prices and a lack of liquidity.
Ostwald said solid demand at the 30-year sale might not be repeated for other bonds, given the niche demand for long-dated British debt from domestic pension funds required to hedge against their long-term liabilities.
Ten-year gilts underperformed against Bunds -- as is common when Bunds lead a rally -- with the yield spread widening 2 basis points on the day to 116 basis points, after touching its narrowest since February on Wednesday.
There was little market reaction to speeches by finance minister George Osborne and Bank of England Governor Mark Carney late on Wednesday, with Carney steering clear of last year's comments on the outlook for monetary policy as he focused instead on the need to stamp out market malpractice.
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