LONDON: British gilt futures tracked Bunds lower in early trade on Tuesday, as rising hopes that euro zone policymakers are working on action to stem the bloc's debt crisis gave a lift to equity markets.
European stock markets were trading more than 2 percent up on the day, extending the previous day's gains after European Central Bank policymakers said on Monday officials were trying to boost the region's rescue fund.
At 0741 GMT, the December gilt future was 54 ticks down at 129.63, outperforming the equivalent Bund by around 20 ticks.
In the cash market, the yield on 10-year gilts was 5 basis points higher at 2.480 percent, narrowing the spread against Bunds by 1 basis point to 59 basis points.
Gilts have outperformed their euro zone counterparts in recent sessions, as investors have focused on developments in the euro zone.
"Equities are climbing, but we're doing slightly better than bunds. I think gilts have been trading with a reasonably low beta to Bunds, because all the stories are about Europe at the moment and affect Bunds more directly than gilts," said a London-based trader.
But he said the relative strength of UK government bonds was somewhat surprising, given that the market will have to digest a flood of supply during the session.
Britain will sell several billion pounds worth of conventional gilts due 2052 via a syndicate of banks on Tuesday.
Analysts said they expected the deal to attract strong demand despite long-dated yields being close to record lows.
"The 40-year sector does not look particularly cheap in outright yield levels, however ... the 2052 syndication looks cheap on asset swap spreads and the ultra-long end is not too rich after all," said analysts at RBS in a note.
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