LONDON: Gilts rose on Monday, outperforming their German peers after a survey showed weakness in Britain's services sector, lifting the chances of more bond purchases by the central bank in future.
Markets' attention now turns to Tuesday's data releases, with manufacturing production figures for September expected to show a small monthly rise, while October car registration numbers could shed some light on Britons' willingness to spend.
Business in the dominant service sector grew at the slowest pace in almost two years in October and less than forecast, while optimism about the outlook waned.
The December gilt future gradually extended gains after the PMI survey and settled 44 ticks higher at 119.57, with its German counterpart up 26 ticks.
Combined with a deep contraction last week in manufacturing PMIs, Monday's data raised the risk that the economy could shrink again between October and December after surprisingly strong expansion in the third quarter.
In turn, this may prompt the Bank of England to announce more stimulus, although probably not as soon as on Thursday when its monthly policy meeting concludes.
Ten-year gilt yields fell 4 basis points to 1.821 percent, with their spread versus Bund yields 2 basis points tighter at 39 basis points.
Low-risk gilts and Bunds were also supported ahead of an uncertain US presidential election and another make-or-break parliamentary vote in Greece.
A global mood of caution had supported government bonds, said Andrew Roberts, RBS Head of Interest Rate Strategy.
The main event for gilt investors remained Thursday's policy decision by the Bank of England.
"Gilts are outperforming...because of the services PMI this morning," Roberts said. "Having said that, a large part of the market, including ourselves, have moved away from that QE call."
Markets will also have to digest fresh gilt supply on Tuesday as the Debt Management Office will sell 3.25 billion pounds of 1.75 percent 2022 debt.
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