Business & Finance

UK gilts meander higher with Bunds as stocks dip

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The December gilt future settled 55 ticks higher at 120.37, in lock step with the equivalent Bund.

 

Ten-year gilt yields fell 5 basis points to 1.729 percent, with their spread over Bunds a touch tighter at 27 basis points.

 

"The market's searching out for a theme, one such theme is weaker earnings to come through in the United States," said Andrew Roberts, head of interest rate strategy at RBS.

 

"One theme is you have finished your US issuance for the week," he added, noting that traders had cheapened the Treasuries on sale and that move was now being reversed.

 

European shares edged lower on concerns about poor earnings. The third-quarter reporting season started earlier this week in the United States, with firms like Chevron and Alcoa was disappointing.

 

Meanwhile, Spain has faced renewed pressure to seek aid after a credit agency cut the rating for its government's debt to near junk on Wednesday.

 

The country said on Friday that a European bond-buying plan was fully ready for use and that there was absolutely no political resistance from within the euro zone to a Spanish bailout request.

 

Gilts extended gains after US producer price data signalled that the underlying domestic inflation trend remained muted. Subsequent news that US consumer optimism rose to its highest in five years led to a slight paring of those gains.

 

British government bonds did not react strongly to non-seasonally adjusted data showing that British construction output fell 11.6 percent on the year in August.

 

The main domestic impetus for trading next week will come from Bank of England minutes, set to be keenly watched for an insight into the likelihood of another round of quantitative easing in November. Britain will also release a raft of data, including inflation and jobs numbers.

 

Copyright Reuters, 2012