LONDON: Short-dated gilt yields rose to their highest level since November on Thursday, adjusting further to recent comments from Bank of England policymakers who suggested they could soon vote to hike interest rates.
The two-year British government bond yield peaked at 0.699 percent, its highest level since Nov. 7, and was last 3 basis points up on the day at 0.685 percent.
The five-year yield, while rising less strongly than the two-year gilt yield, touched a new eight-month high for the second session in a row.
Three members of the BoE's Monetary Policy Committee this week highlighted encouraging signs in Britain's labour market, with Martin Weale in particular hinting he could soon vote to hike rates from their record low level.
And on Thursday, BoE Deputy Governor Minouche Shafik said it would be "overly gloomy" to interpret low gilt yields as a signal of a prolonged period of low growth or low inflation.
"We've seen a few hawkish MPC members coming out and it seems the balance of probability is shifting more towards higher rates, probably earlier than what the market was pricing in before," said Vatsala Datta, strategist at RBC.
Until last week's labour market data, markets were pricing a first BoE rate hike for around midway through 2016. Now they are priced for March, said Datta.
Short-dated gilt prices underperformed against German Bunds, which rose slightly as euro zone finance ministers gathered to discuss proposals to avoid a default by Greece.
The premium that two-year gilts offer over the equivalent German Bund rose to its highest level since early October, peaking at 89.7 basis points, and was last at 88 basis points -- up 3 basis points on the day.
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