LONDON: Gilt futures fell on Monday, pressured by strong Chinese and British manufacturing data, as well as by an auction of 3.25 billion pounds of the 10-year benchmark due on Tuesday.
The June gilt future settled 32 ticks down at 114.19, recovering from a five-day low of 113.61 hit after a PMI survey showed that British manufacturing activity expanded at its fastest pace in 10 months in March.
The equivalent Bund was 7 ticks down on the day, having pared earlier losses as worries over the euro zone crisis, and particularly Spain's ability to meet budget targets, lingered.
Gilts and Bunds had already fallen early in the session after better-than-expected Chinese manufacturing data, which nonetheless still suggested that the country might be headed for its weakest quarter since 2009 at the peak of the global crisis.
"The (British) PMI numbers were pretty solid actually," said Anthony O'Brien, gilt strategist at Morgan Stanley.
He added that gilts' underperformance versus Bunds was partly driven by stronger economic data in Britain compared to the euro zone. The single currency area's manufacturing sector shrank for an eighth month running in March, a PMI survey showed.
The upcoming auction of 4 percent 2022 gilts also weighed on gilt futures, analysts said.
Jo Tomkins, 4CAST strategist, said demand at the sale should be good despite relatively unattractive yields.
"The market should be reasonably content if the sale manages to drum up decent support (bid-to-cover ratio of at least 1.5 times) but any post-supply reaction could be short-lived if external themes continue to override," Tomkins wrote in a note.
Gilts temporarily extended losses by more than 10 ticks in the wake of news that the pace of growth in US manufacturing picked up last month, although construction spending saw its largest drop in seven months in February, pointing to an economy that is healing gradually.
Ten-year gilt yields were 1 basis point up on the day at 2.215 percent, widening the spread against Bunds by more than a basis point to 42 basis points.