LONDON: Gilt prices rose in thin pre-weekend trading on Friday after a round of weak British and US economic data, but they trailed German Bunds sharply after comments from a European Central Bank official boosted euro zone credit markets.
After a morning dip, British government bonds rallied on data showing a shock fall in domestic retail sales last month. A surprise deterioration in US consumer sentiment to its lowest in over a year in January also drove investors out of shares and into top-rated government bonds.
"Retail sales were disappointing, (which was) mildly supportive, but to be quite honest, gilts have taken their cue from what's happened in Treasuries and Bunds today," said RIA Capital Markets strategist Nick Stamenkovic.
Still, the March gilt future settled 23 ticks higher at 116.96, underperforming the equivalent Bund future by more than 30 ticks, after comments from European Central Bank board member Benoit Coeure eased fears that the steady repayment of emergency loans by banks to the ECB would drive up short-term market rates.
There was little immediate reaction to a speech from new Bank of England Monetary Policy Committee member Ian McCafferty, who said now was not a good time to try to boost the economy with further gilt purchases.
"I think the MPC is in a wait-and-see stance at the moment, they seem to be putting a lot of effort into the Funding for Lending Scheme," Stamenkovic said.
Most economists already doubt the BoE will restart its programme of gilt purchases, although minds have turned back to the possibility after several weak batches of economic data this month, helping to halt a new year sell off.
Ten-year gilt yields fell 2 basis points to 2.02 percent.
Next week sees a slew of British data, including fourth quarter gross domestic product, public sector borrowing and minutes from the Bank of England's last policy meeting.
"If the economic picture continues to worsen over here, the Bank of England may be forced to do more QE, but I think that is a story for the second half of the year," Stamenkovic said.
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