LONDON: Long-dated British government bonds finished flat on the day on Wednesday, after yields recovered from record lows hit in the middle of the session following confusion about the scale of potential IMF support to tackle the euro zone debt crisis.
Yields tumbled to record lows after the correction of a media report published earlier on Wednesday that had stated the International Monetary Fund was seeking to raise an extra $1 trillion in resources.
In fact - as IMF sources told Reuters - the sum being sought amounted to $500 billion plus a $100 billion "protective buffer" . This, and initial doubts about whether the money would be enough, took 10-year yields down to 1.918 percent, 20-year yields to 2.722 percent and 30-year yields to 2.931 percent.
Later in the session, a more positive assessment of the IMF news and of Goldman Sachs' quarterly results by US stock markets led to an improvement in investor risk appetite, a reversal of gilt gains and a fall in Treasury prices.
"There was a lot of volatility at the longer end of the curve," said JP Morgan gilts strategist Francis Diamond. "Certainly the IMF headlines got a bit of attention. That gave some initial momentum into gilts, and since then we've come back a little bit as stocks are a bit stronger."
The March gilt future settled 8 ticks up on the day at 117.26, well off the contract high of 117.68 that it hit earlier in the session, moving broadly in line with the equivalent Bund.
Ten-year gilts also lost their gains, with yields finishing broadly flat on the day at 1.96 percent. Versus 10-year Bunds , gilts were little changed with the spread holding steady at just over 17 basis points.
Short-dated gilts fell by 2-3 basis points on the day, underperforming longer maturities as investors braced for Thursday's auction of 4 billion pounds of 4 percent September 2016 gilts.
Diamond said that despite yields not far off a record low, there should be reasonable demand for the five-year gilt due to the maturities' appeal to overseas investors, who bought heavily into the gilt market late last year.
A greater challenge may be next week's syndicated offering of several billion pounds of 2052 gilts, the success of which Diamond said might hinge on how much the gilt cheapens versus 10-year debt.
No major data is scheduled for release on Thursday, apart from the December Nationwide consumer confidence index overnight . There was little reaction to unemployment data released earlier on Wednesday which showed joblessness at a 17-year high.
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