LONDON: British gilts tracked German government debt lower on Tuesday, due to pressure from Dutch regulatory changes and the afterglow of last week's EU summit, but a solid sale of 1.75 billion pounds of 2030 gilts helped stem some of the UK market's losses.
The September gilt future was 30 ticks down at 119.24 at 1143 GMT, broadly in line with the equivalent Bund and reversing earlier underperformance.
Gilts had underperformed late on Monday and early on Tuesday in the run-up to the 2030 sale, but in the event there was a strong bid-to-cover ratio of 2.06 - higher than when the gilt last sold in September 2010 and above average for this type of gilt.
"With the auction been and gone and quite successful, gilts have come back a bit," said Citi strategist Jamie Searle.
The UK Debt Management Office sells 4.5 billion pounds of 1 percent 2017 gilts on Wednesday. The much shorter maturity and the fact that there will be less liquidity due to the US Independence Day holiday make it hard to extrapolate from the success of the 2030 sale to the 2017, Searle said.
The broader market for European core fixed income was lower due to Dutch issuance and also - Searle said - due to an announcement by the Dutch central bank late on Monday that it was changing the interest rate curve for insurers, reducing demand for long-dated debt.
Gilt futures closed at a nine-day low on Friday as investors welcomed an agreement by European Union leaders to allow the euro zone's rescue fund to directly help the bloc's troubled banks, and this is still putting a small amount of pressure on gilt and Bund prices on Tuesday.
Ten-year gilt yields were more than 2 basis points up at 1.72 percent, and 30-year yields were 4 basis points higher at 3.05 percent.
Versus Bunds, 10-year yield spreads were a fraction tighter on the day at just under 18 basis points.
The market paid little attention to a raft of British economic data that confirmed a largely gloomy picture for the economy, with construction activity contracting at its fastest pace in 2-1/2 years.
Instead the main focus is on Bank of England and European Central Bank policy meetings on Thursday.
The BoE is widely expected to restart its quantitative easing programme, approving 50 billion pounds of gilt purchases over three months, but there is an outside chance it may buy 75 billion pounds.
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