LONDON: British gilt yields struck a new all-time low on Thursday, dragged down by a rally in global government bonds as investors around the world dumped equities in a nervy market and by the approach of Britain's European Union membership referendum.
The 10-year gilt yield fell to 1.224 percent, the lowest level since records began. It was last at 1.24 percent, down one basis point on the day.
The equivalent German Bund yield also fell to a record low as investors bought bonds, spurred by renewed doubts about the outlook for US interest rates and Britain's EU vote which takes place in two weeks' time. Jason Simpson, fixed income strategist at Societe Generale, said gilt yields could fall further.
"The backdrop for gilts has been constructive: economic data hasn't been great and there's a pause in issuance until early July," he said.
"As Bund yields get squeezed lower, people have been regarding gilts as not too bad value." Simpson added that liquidity in the market was thin because investors were probably "sitting on their hands" ahead of the referendum, with the small number of trades exacerbating the size of moves in the market.
The Debt Management Office (DMO) sold 900 million pounds ($1.3 billion) of a 20-year index linked gilt on Thursday, which attracted unspectacular demand with bids exceeding the amount on sale by 1.75 times.
With no more auctions officially scheduled until July 5, Simpson said he expected the DMO to hold a mini-tender to sell a batch of conventional gilts due 2027 in the last week of June - if Britain stays in the EU and the market is stable.
The yield spread between 10-year gilts and Bunds was little changed at 120 basis points, having earlier dipped to 118.4 basis points, the lowest level since March 17.
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