LONDON: British government bonds tumbled on Friday, pushing yields to their highest level since mid-2011 as a brighter economic outlook encouraged investors into dump fixed-income assets for equities.
Thin trading conditions amplified the move, lifting the 10-year yield to 3.083 percent, more than double the record low touched in 2012 and a full percentage point above where it started the year.
US Treasury yields also rose to their highest since 2011, reflecting strong data that has fuelled expectations of a steady reduction in bond-buying by the Federal Reserve next year.
Britain’s economic turnaround has been even more dramatic. The economy — which at the start of the year looked headed for a triple-dip recession — is now one of the fastest-expanding in the industrialised world with annual growth of more than three percent.
Expectations that the Bank of England will be the first major central bank to raise interest rates has sent the spread over Bunds to its widest since 2005 and gilt investors bracing for one of their worst performances on record.
On a total return basis, gilt investors have lost more than four percent this year compared to losses of three percent for US Treasuries and less than two percent for Bunds, according to Citi data. With no fresh data to give direction, traders took their cue from a slew of upbeat indicators released in the run-up to Christmas and from moves in other markets.
Britain’s top share index got a boost from fresh all-time highs on Wall Street and notched up a sixth straight day of gains.
Gilt prices fell from the open, reacting to losses in US Treasuries on Boxing Day when British markets were shut.
Reuters
