LONDON: British government bonds reversed their underperformance versus Bunds after the plan for gilt sales in 2013/14 undershot forecasts and a new remit for the Bank of England raised chances it would buy more gilts.
British debt lagged German paper early in the session after minutes of the BoE's latest meeting showed policymakers were no closer to backing additional asset purchases this month than last.
However, gilts recovered their footing after finance minister George Osborne announced a new BoE mandate, and were later boosted further after the Debt Management Office cut gilt issuance more sharply than expected to 151 billion pounds in the 2013/14 fiscal year from 164.8 billion pounds in 2012/13.
"The DMO remit was at the lower end of expectations which, at the margin, is a positive for the market," said Sam Hill, fixed-income strategist at Royal Bank of Canada.
"The change in the BoE remit...validates the view that inflation will stay above target for a while," he added.
While the central bank should continue to keep annual inflation at 2 percent, low and stable price growth is not enough for prosperity, finance minister George Osborne said in his annual budget statement.
The new mandate for the BoE he announced also recognised the potential need for further "unconventional monetary policy instruments", such as the massive gilt purchases it has already undertaken to support the economy.
June gilt futures settled 27 ticks lower at 117.59, while their German counterparts were 32 ticks down.
Gilts and Bunds were undermined by bets that policymakers will find an eventual solution to debt problems in Cyprus.
Cyprus sought a new loan from Russia to avert a financial meltdown after its parliament rejected on Tuesday plans to partially fund a European Union bailout for the indebted island with a deposit levy.
<Center><b><i>Copyright Reuters, 2013</b></i><br></center>
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