LONDON: Long-dated British government bond prices fell sharply on Tuesday in a global fixed income rout, as investors awaited new Bank of England forecasts that could bring forward expectations for British interest rate hikes.
The BoE will detail on Wednesday when it expects inflation to return to its 2 percent target after slumping to a record-low zero percent in February and March due to a tumble in global oil prices.
Yields rose most strongly for 30-year gilts, up 8.5 basis points on the day to 2.645 percent at 1527 GMT. Earlier, the five-year gilt yield hit a six-month high of 1.559 percent.
Marc Ostwald, strategist at ADM Investor Services, said gilts had moved in step with German Bund and U.S. Treasury prices, which in turn were linked a rising Brent crude oil price .
But he added that the BoE's quarterly forecasts - due at 0930 GMT - could well give gilts their own momentum.
"The market will be sensitive to any signs that the Bank is slightly more optimistic on the economy, looking at the rebound in oil prices and thinking, yes, there is a chance that inflation will pick up slightly more rapidly towards target."
Other analysts said interest rate futures currently pointed to a first BoE interest rate hike coming around May next year.
Minutes from the BoE's April policy meeting described the market's rate tightening expectations as "exceptionally slow", which raised the risk of a more hawkish stance from the BoE than the market expects, RBS strategist Simon Peck said.
"If there is a discussion about the pace of tightening, that could be seen as mildly hawkish by the market and it could price in a bit of curve steepening," Peck said, referring to underperformance of longer-dated gilts.
The premium that 10-year gilts offer over the equivalent German Bund narrowed by around 3 basis points to 131 basis points, as Bund prices plummeted faster on Tuesday than those for gilts.
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