LONDON: British government bonds followed US and German debt slightly higher on Tuesday before the release of December inflation figures, after Federal Reserve Chairman Ben Bernanke expressed concerns about the pace of US economic recovery.
Bernanke said in a speech late on Monday the US economy appeared to be responding to the Fed's aggressive easing of monetary policy, but not as fast as it would like.
"I want to be clear that while we've made progress, there's still quite a ways to go before we'll be satisfied," he said.
March gilt futures were 6 ticks up on the day at 116.88 at 0842 GMT, slightly underperforming the equivalent Bund future, after German data showed that Europe's largest economy shrank by 0.5 percent in the last three months of 2012.
Ten-year gilt yields were 1 basis point lower on the day at 2.02 percent, but their spread over Bunds was around 1 basis point wider at just 49 basis points.
The British market's attention is focused on December inflation figures due at 0930 GMT, which are forecast to show consumer price inflation (CPI) holding at 2.7 percent, the highest level since May, for a third month.
A significantly higher reading was likely to lead gilts to underperform, fixed income strategists at Lloyds said.
"We favour a range trading session with gilts potentially underperforming US (bonds) especially if the UK CPI release manages to surprise with a 3 percent plus print. Our economists look for 2.8 percent," they said in a note to clients.
Royal Bank of Canada strategist Sam Hill also said that gilts looked to have exhausted a recent run of outperformance, which started when gilt yield spreads over Bunds peaked at their highest level in more than a year earlier in the month.
"We are minded to use any further strength in gilts to recommend scaling back tactical positive cross-market exposure," he said.
There was little market reaction to the release of December housing data from the Royal Institution of Chartered Surveyors, who said a boost from a Bank of England lending scheme helped its headline index rise to its highest level since June 2010.
The main economic data later in the session is the New York Federal Reserve's January manufacturing survey, which is forecast to show a modest improvement.
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