LONDON: British gilt futures tumbled to a three-week low on Wednesday after Germany's Constitutional Court gave a green light for the ratification of the euro zone's new bailout fund, buoying crisis-weary investors.
Germany is the only country in the 17-nation bloc that has not ratified the European Stability Mechanism, an important tool to stem the crisis that has forced bailouts of Greece, Ireland and Portugal, and is now threatening big countries like Italy and Spain.
The December gilt future settled 99 ticks lower at 119.16, having plumbed a session low of 119.06 -- the lowest since Aug. 22. The equivalent Bund future was 83 ticks down.
"It's a German story today. It's a continuation of mild risk-on conditions, which is...bearish for safe havens," said Andrew Roberts, head of interest rate strategy at RBS.
"I think there will be a few people naturally extrapolating: better news in Europe, everything's fixed, with no QE in the UK. The knock-on effect, ironically, hurts the UK more dramatically than the German product," he added, also noting stronger British jobs data.
The number of Britons claiming unemployment benefit fell in August by the largest amount in two years as companies created jobs, raising hopes that more confident consumers would kick-start a recovery in an economy dragged down by government austerity measures and the euro zone debt crisis.
Gilts briefly pared losses by about 10 ticks after the release.
Still, a Reuters poll taken this week found that most economists expect the Bank of England to beef up its quantitative easing programme with another 50 billion pounds in November.
BoE policymaker Ben Broadbent provided little insight into the central bank's possible decision in November, saying only that he would vote for more purchases of government bonds to stimulate the economy if the circumstances warranted it.
Ten-year gilt yields were 10 basis points up at 1.836 percent, with their spread over Bunds a notch wider at almost 21 basis points.
The main domestic driver on Thursday will be an auction of 3.5 billion pounds of 1.75 percent 2022 gilts.
Nomura strategist Artis Frankovics said he expected a weak or average sale despite the paper's relative value, as the amount was "bulky" given that 1.25 billion pounds' worth of index-linked gilts was also auctioned on Tuesday.
"The bond will be tapped three more times in the current calendar year while being eligible in only three of the remaining eight 7- to 15-year bucket buybacks in the current phase of QE, the first being on Oct. 10," he added.
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