LONDON: Gilts lagged Bunds early on Wednesday, as investors bet that a budget update from finance minister George Osborne would point to a deterioration in Britain's public finances.
Osborne, who will update parliament with new growth and budget deficit figures just after 1230 GMT, may have to admit borrowing will rise this year.
Lloyds strategists said in a note that a worsening in Britain's fiscal position should be largely priced in by now.
"However, current concerns over the fiscal/growth backdrop appear to be the more dominant force at this juncture, with the market also uneasy around potential ratings issues," they wrote.
Osborne's Autumn Statement will be followed by a gilt issuance announcement from the UK Debt Management Office.
Gilt-edged market makers polled by Reuters predict that the DMO will revise down issuance this fiscal year to 158.2 billion pounds from its previous remit of 164.4 billion.
However, analysts said gilt issuance was likely to be reduced not through success in cutting borrowing, but rather through the Bank of England returning to the finance ministry around 35 billion pounds of interest paid on gilts it had bought as part of quantitative easing.
"The underlying deterioration in UK public finances and the likelihood of some negative headlines around the accounting treatment can drive further gilt underperformance," RBS strategists said.
At 0841 GMT, the March gilt future was 33 ticks down on the day at 118.69, lagging the benchmark Bund by around 20 ticks.
Before the Autumn Statement, services PMI data due at 0928 GMT will dominate the British agenda.
The 10-year gilt yield rose 3 basis points to 1.84 percent, with its spread versus the equivalent Bund yield 2 basis points wider at 44 basis points.
Comments
Comments are closed for this article.