Markets

UK gilt futures hit 8-day high on growth worries

Published September 20, 2012 Updated September 20, 2012 06:26pm

Purchasing managers' indices, which survey thousands of companies worldwide every month, showed a widening chasm between sickly France and a more resilient Germany and an 11th successive monthly fall in Chinese factory activity.

 December gilt futures settled 45 ticks higher at 119.67, in line with the equivalent Bund and close to the eight-day high of 119.76 set earlier in the session.

 Ten-year gilt yields were 4 basis points lower at 1.80 percent and their yield spread over Bunds was unchanged on the day at 22 basis points.

"The main driver of gilts today is risk markets," said Nick Stamenkovic, fixed-income strategist at RIA Capital Markets.

"Renewed economic growth worries in euro land, China and Japan have caused a bit of retracement on equity markets today. That's led to a bit of a pick-up in demand for core government bonds including gilts," he added.

Higher than expected weekly US jobless claims also caused a modest rise in prices for safe-haven debt.

 There was solid demand at a sale of 4.5 billion pounds of five-year gilts, which sold at an average yield of just 0.802 percent -- below the 0.942 percent average at the last auction of the gilt on July 4, although a shade above the 0.796 percent at the auction of a similar gilt on Aug. 23.

"It was decent demand but it wasn't overwhelming. Yields are still relatively low by historical standards, so you're not going to get the type of demand you had two years ago, but it has still underpinned gilts," Stamenkovic said.

There was little reaction to mixed British economic data earlier in the session, which showed a small fall in retail sales and a better than expected trend in industrial orders.

 Bank of England Governor Mervyn King will give a rare live television interview later on Thursday. Analysts will scrutinise his comments for clues about further stimulus measures and his views on inflationary pressures.

On Friday, Britain releases August public borrowing data, which economists expect to show a further deterioration relative to the position last year, after July's sharp year-on-year worsening in the fiscal position.

Copyright Reuters, 2012