Ten-year gilt yields hit 10-week high on Draghi, data

LONDON: Ten-year gilt yields rose to a 10-week high on Friday, extending Thursday's sell-off in safe-haven assets after the European Central Bank announced plans to buy euro zone peripheral debt and British industrial output grew faster than expected.

The yield on a 10-year gilt jumped 8 basis points on the day to touch 1.798 percent at 1049 GMT, a level last seen on June 29, as prices fell sharply following Thursday's news conference from ECB President Mario Draghi.

"Since the Draghi comments, markets have moved into 'risk on' rather than 'risk off'," said Moyeen Islam, fixed income strategist at Barclays. "Equities are doing pretty well and gilts and Bunds are both down."

After outperforming German government debt over the past couple of days, due to the greater effect of potential ECB action on investor appetite for Bunds, gilts yield spread over Bunds widened 2 basis points to 17.5 basis points following a bounce back in industrial output.

"(Gilts) are underperforming ... the industrial production was quite a bit stronger than expected," Islam said, adding that long-dated gilts were significantly underperforming shorter maturities.

Industrial output rose by 2.9 percent on the month, almost double the forecast pace and the strongest reading in 25 years, a gain that was only partly due to a rebound from weak output in June, when there was an extra public holiday to mark Queen Elizabeth's 60 years on the throne.

Gilts also underperformed in the futures market, where the December contract fell 73 ticks on the day to 119.55 at 1110 GMT, compared to a 57-tick drop for the equivalent Bund .

"The momentum is there at the moment to keep the pressure on gilts from the perspective of Europe and the feelgood factor we are experiencing," said Orlando Green, a fixed income strategist at Credit Agricole.

Alongside the industrial production data, August producer price figures showed a pick-up in price pressures, though a separate BoE survey showed a more reassuring fall in public inflation expectations.

The next major focus for the market is US non-farm payrolls data at 1230 GMT, which is forecast to show 125,000 jobs created last month, down from 163,000 in July.