Business & Finance

Economy worries, bunds drag on gilts ahead of auctions

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At 1113 GMT, December gilt futures were 50 ticks down at 120.05, compared to a 42-tick fall in the equivalent German Bund contract.

 

"There's this background worry about the UK's inability to gain much economic momentum," said John Wraith, fixed-income strategist at BofA Merrill Lynch Global Research.

 

He pointed to a survey by accountancy group BDO showing that optimism among British businesses slumped to a 20-year low last month.

 

"When you see reports like that, which are forward-looking and have a long track record and are plumbing these sorts of depths, it has to suggest that maybe a third-quarter bounce-back is just a flash in the pan.

 

"That starts to raise all those worries about future supply levels and borrowing requirements and creditworthiness and rating and all the rest of it. Maybe that's something that's giving gilts a bit of a headwind today," Wraith added.

 

He also noted that gilts were no longer supported by reinvestment flows from coupon payments, which underpinned them last month.

 

Otherwise, gilts were broadly in a holding mode ahead of an auction of 2034 index-linked gilts on Tuesday and a ruling by Germany's top court on the legality of the euro zone's new bailout fund and budget rules on Wednesday.

 

Ten-year gilt yields were 6 basis points up at 1.743 percent, with their spread over Bunds 2 basis point wider at 18.5 basis points.

 

Copyright Reuters, 2012