LONDON: British gilts fell in early trading on Tuesday ahead of British inflation data as investors moved money into riskier assets, heartened by solid company results and talk that Spain was moving closer to a bailout deal.
Consumer and producer price inflation data, due at 0830 GMT, will be closely watched as fading price pressures would give the Bank of England more leeway to add to its quantitative easing stimulus programme in November.
At 0736 GMT, the December gilt future was 18 ticks lower at 119.97, in line with the drop in the equivalent Bund future.
"Overall the report is due to be both market and QE friendly," analysts at IGM wrote in a note. However, the recent rise in energy prices posed a risk to the BoE's forecast that inflation will fall to its 2 percent target soon, they said.
Economists expect the year-on-year consumer price inflation rate to fall to 2.2 percent in September, the lowest since November 2009 and down from 2.5 percent in August.
The inflation data will set the stage for the minutes of the Bank of England's latest policy meeting, due on Wednesday, which should provide
more clues about the policymakers inclination to buy more government bonds to boost the economy.
"Meanwhile reports about the details for a potential Spanish aid request are supporting risk sentiment," IGM said.
A Spanish bailout request could come next month according to euro zone officials, one of whom said talks on a potential aid programme were advancing.
European shares and the euro gained on the stronger risk appetite.
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