LONDON: Ten-year gilts suffered their biggest one-day fall for eight weeks on Thursday, taking their lead from a tumble in US Treasury prices, higher share prices and solid demand at euro zone debt auctions.
The 10-year gilt yield rose 10 basis points on the day to 2.06 percent, moving sharply away from the record low of 1.918 percent struck on Wednesday following confusion about the scale of new International Monetary Fund resources.
This was the biggest rise in the 10-year yield since Nov. 25, when yields jumped 14 basis points in a day after reports that the euro zone would not require private sector investors to take part in a bailout fund.
Gilts' fall on Thursday replicated similar moves in US and German government debt, which started shortly after US markets opened following data that showed initial US jobless claims were close to a four-year low.
Adding to the move was strong demand at auctions of French, Spanish and Austrian debt - which eased investor worries about non-core euro zone bonds - and better-than-expected fourth-quarter results from Bank of America and Morgan Stanley.
"There is an underlying interest in a 'risk on' move, and that's been evident in the price action," said Lloyds strategist Eric Wand. "Given the price action we've had in the fast few days, if there's any chance to shove the market lower before the syndication, the market will take it."
Britain aims to sell several billion pounds of 2052 gilts via syndication next week, and ultra-long yields close to record lows makes this a harder task for the banks involved.
March gilt futures settled 93 ticks down on the day at 116.33, in line with the equivalent Bund, though in the cash market gilts underperformed slightly, with the yield spread for 10-years widening by a basis point to 19 basis points .
As usually happens when there is increased investor risk appetite, 10-year gilts heavily underperformed five- and two-year debt , which was broadly flat.
Solid demand at the DMO's sale of 4 billion pounds of September 2016 debt also helped.
"It's a bond that's in a sweetspot," said Sam Hill, a gilts strategist at RBC. "The 3-5 year sector benefits both from general demand for short-dated gilts from overseas investors ... and from the QE story."
The widespread expectation that the BoE will inject a further 50 billion pounds of stimulus into the economy next month is a further incentive for gilt buyers at home and abroad.
Investors' interest on Friday will be on the release of December retail sales data, which is forecast to show an end-of-year uptick. Also, Greece's debt restructuring talks with its private sector creditors are reaching a crunch point.
Comments
Comments are closed.