LONDON: Long-dated British government bond yields rose to their highest level in almost a month on Thursday, boosted by an upbeat survey of manufacturers that could prompt the Bank of England to rethink the need to cut interest rates again.
Gilts sharply underperformed German and US debt after the Markit/CIPS gauge of factory activity topped all economists' forecasts, the strongest signal yet that Britain's economy is faring better than initially feared after June's Brexit vote.
The 10-year gilt yield rose 4 basis points on the day to 0.68 percent, having earlier peaked at 0.721 percent -- its highest since Aug. 4, the day the Bank of England unleashed a "sledgehammer" stimulus package.
But growing signs the economy has sidestepped a sudden downturn since Britons voted to leave the European Union has fuelled speculation the BoE might refrain from cutting interest rates again, or further expanding its asset purchases.
"(The PMI) was slightly damaging for the view that the Bank is going to be forced to cut rates again and undertake more (quantitative easing) anytime soon," said Jason Simpson, fixed income strategist at Societe Generale.
But the purchasing managers' index for the much larger services sector, due next Monday, will be of far more importance for the views of BoE policymakers than the latest manufacturing survey.
"I wouldn't read too much into day's sell-off. A 5 basis point move used to be considered extreme, but today that kind of move barely gets on the radar," Simpson said.
The premium that 10-year gilts offer over the equivalent German Bund rose to its highest level since Aug. 4 at 76.6 basis points at was last up around 4 basis points on the day, at 74.6 basis points.
Britain also sold 2.75 billion pounds ($3.66 billion) of the 0.5 percent conventional gilt due 2022 via auction. This attracted bids worth 2.33 times the amount on offer, similar to the last sale on Aug. 2 despite an average yield almost 20 bps lower at 0.373 percent.
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