LONDON: British government bonds made modest gains on Monday, slightly outperforming German debt as weaker US factory employment data took the shine off more upbeat British manufacturing numbers.
The employment component of the US ISM manufacturing index fell in June, leading traders to think a US payrolls report due on Friday could be weaker than forecast and encourage the Federal Reserve to keep buying bonds.
For most of the session, gilts had been in negative territory and marginally underperformed Bunds, after Britain's manufacturing PMI showed its strongest reading in more than two years.
But September gilt futures settled for the day 21 ticks higher at 112.11, well off an earlier session low of 111.33 and outperforming Bunds by more than 10 ticks.
In recent weeks, market moves driven by changing views on the Fed's bond purchases have tended to affect gilts more than Bunds.
Ten-year gilt yields finished the day more than 1 basis point down at 2.42 percent, having previously touched a five-day high of 2.498 percent just after the British data was released.
Tuesday sees the sale by auction of 3.5 billion pounds ($5.31 billion) of the September 2023 gilt, which met with lacklustre demand from investors when it was launched on June 11 at an average yield of 2.365 percent.
Monument Securities gilt strategist Marc Ostwald said that although the gilt still lacked liquidity - limiting its appeal to some investors - its cheapness relative to other similar-maturity gilts should ensure healthier demand at Tuesday's sale.
This view was also shared by Citi, which wrote in a note to clients that the gilt represented good value, especially as new Bank of England Governor Mark Carney - who started work on Monday - might lead a resumption of gilt purchases.
"Much still depends on Treasuries, but Carney's arrival at the Bank of England may soon be followed by a policy shift. We view tomorrow's auction as a buying opportunity, especially given the cheapness of the Sep23s on the curve," Citi strategist Jamie Searle wrote.
The September 2023 gilt currently offers a 19 basis point yield premium over the current 10-year benchmark, the September 2022.
Comments
Comments are closed.