UK gilt yields hit one-month low after weak US factory data

LONDON: British government bond yields fell on Tuesday to their lowest level in over a month after a survey showed U.S. manufacturing contracted at the fastest pace since 2009, giving some investors pause for thought about a widely expected U.S. rate hike this month.

Britain also received strong demand at a syndicated sale of British inflation-linked bonds.

Gilt prices, which are sensitive to U.S. market moves, shot lower along with those for U.S. Treasuries after the closely watched ISM survey showed manufacturing in the world's biggest economy had contracted for the first time in 36 months.

Ten-year gilt yields fell 6 basis points on the day to 1.77 percent, having fallen to their lowest level since Oct. 27 at 1.764 percent.

Gilt yields for other maturities, both short and long, touched similar records.

"We saw some disappointing manufacturing surveys particularly in the U.S. but also the UK which gave gilts a boost and pushed yields lower," Nick Stamenkovic, strategist at RIA Capital, said.

Analysts said the U.S. survey was unlikely to make much of a difference to the debate within the Federal Reserve ahead of Dec. 15-16 meeting which could see rates rise for the first time since 2006.

The yield spread between 10-year British and German government bonds fell sharply to 129.7 basis points, down around six basis points on the day.

Earlier Britain sold 3.25 billion pounds ($4.9 billion) of the 0.125 percent 2046 index-linked gilt at a sale via syndication, which attracted orders of 13 billion pounds and achieved a negative real yield.

"The syndication saw pretty decent demand, which is highlighting the ongoing structural demand for long-dated linkers. The main driver is likely to be domestic pension funds as they match assets and liabilities," Stamenkovic said.

Britain's Debt Management Office said domestic investors accounted for around 92 percent of the allocation.

HSBC, Morgan Stanley, Scotiabank and UBS acted as joint bookrunners for the sale.

Earlier the DMO released the minutes from its most recent meeting with market makers. It said views were broadly split between holding another linker syndication in January or February next year.