LONDON: British 10-year gilt yields reached their highest in almost three weeks on Friday, with the campaign against Scottish independence gaining ground and US Treasury yields rising.
The 10-year gilt yield climbed to 2.555 percent, its highest level since Aug. 25, when there was a change of bonds used for the 10-year benchmark and major global government bond prices slumped following US data.
The 10-year gilt yield ended the session at 2.53 percent, up 3 basis points on the day The yield spread between 10-year gilts and the equivalent German Bund narrowed sharply by 5 basis points to its lowest level since Aug. 22.
Solid US retail sales data cemented expectations that next week the US Federal Reserve will signal its intention to raise interest rates, pushing short-dated US Treasury yields close to a three-year high.
"It's mostly international," said Marc Ostwald, strategist at ADM Investor Services, explaining why gilt yields rose on Friday.
Ten-year gilts opened trading up around 2.5 basis points from Thursday's close. A poll overnight showed the campaign to keep Scotland in the United Kingdom had taken a lead of 4 percentage points over separatists.
A vote against independence would keep intact expectations that the Bank of England will raise interest rates in the first few months of 2015.
That helped to boost gilt yields in early trading. The Scottish independence referendum next Thursday dominates the outlook for gilts next week, but Ostwald said inflation and wages data could also move the market.
"It's a big event-risk week. If CPI continues to fall as forecast, that certainly provides one offset, and if wages are as weak as people expect, that also helps because that means there's no pressure on the Bank of England," Ostwald said.
Economist polled by Reuters expect average weekly earnings rose 0.5 percent in July, rebounding from a 0.2 percent fall in June but still far behind the rate of inflation.
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