LONDON: Gilts fell on Friday after a strong Chinese manufacturing survey boosted world share markets while the risk of a downgrade to Britain's credit rating also weighed on demand for its debt.
Ratings agency Standard & Poor's late on Thursday revised its outlook for Britain's triple-A rating to negative. It expects net general government debt to continue to rise into 2015.
"The S&P came out, and changed the outlook on the UK bonds, revised down to negative.
That has been a fear for a while now, but given that it has now taken place it has resulted in UK government bonds underperforming the Bund market," said RIA Capital Markets strategist Thomas Rahman.
Strong growth in China's manufacturing sector in December, set a negative tone for core government bond markets.
China's manufacturing sector expanded in December at its fastest pace in 14 months as new orders and employment rose, a survey showed on Friday.
At 1157 GMT, the March gilt future was 13 ticks lower at 118.41, while the equivalent Bund was 5 ticks lower on the day.
Ten-year gilt yields rose 1 basis point to 1.87 percent . Earlier in the session, their spread over equivalent Bund yields widened 2 basis points to peak at 53.3 basis points - the fattest spread since October last year.
Investors will look towards a slew of US economic data, expected at 1330 GMT, for further clues on the health of the US economic outlook as fears of a "fiscal cliff" hovered over markets.
"We really are just looking at US data once we've absorbed the euro zone PMIs but all of the data that's out today. (But) it is going to have to spring a surprise to distract markets from the other big overhang factor which is the US fiscal cliff negotiations," said Marc Ostwald, strategist at Monument Securities.
Earlier in the session, gilts shrugged off British construction data which showed the sector grew in October, raising hopes of possible growth in the fourth quarter which would help the economy avoid a forecast contraction.
**
Comments
Comments are closed for this article.