LONDON: British government bond futures rose on Tuesday on the back of weak US manufacturing data and changing sentiment about potential European Central Bank support for peripheral euro zone economies, after hitting an 11-day low hit earlier in the day.
December gilt futures settled 22 ticks up at 121.05, well off the low of 120.33 struck early in the session when Bunds continued the decline triggered late on Monday by comments from ECB President Mario Draghi that appeared to support bond purchases.
But risk appetite ebbed away by the middle of Tuesday's session, in part as markets reassessed Draghi's comments, and also due to weak British construction and retail figures.
This trend got further impetus after data showed US manufacturing shrank at its sharpest clip in more than three years last month, while exports and hiring also slumped in another blow to the struggling US economy.
Stronger than expected British services PMI figures -- released a day earlier than scheduled -- did little to reverse the overall move higher in gilt prices.
"The market has shrugged that off and paid more attention to the US data. That clearly has given gilts a bit of a lift," said Nick Stamenkovic, a fixed income strategist at RIA Capital Markets.
Ten-year gilt yields were 1 basis point down on the day at 1.64 percent, while their spread over Bunds tightened 4 basis points to 24 basis points.
Stamenkovic said gilts' outperformance was partly due to a growing realisation among investors that Germany might have to shoulder a greater share of the cost of a euro zone bailout, as well as the negative impact of purchases of euro zone peripheral debt on Bunds' appeal to investors.
Wednesdy's main UK event is the sale of 1.75 billion pounds ($2.78 billion) of benchmark 30-year gilts.
Bank of America Merrill Lynch strategist John Wraith said they should attract solid demand, due to a relatively cheap valuation for 30-year compared to 10-year gilts, the yields on which are close to a record low.
Wednesday's sale is also likely to be the last for that gilt for a while -- something that tends to support prices -- as the DMO plans to launch a new 30-year gilt via syndication next month.
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