By David Milliken
LONDON, Dec 5 (Reuters) - Stronger-than-forecast U.S. growth
data pushed 10-year British government bond yields to a 10-week
high on Thursday, and the market shrugged off a widely expected
downward revision to Britain's debt issuance plans.
British government bond prices tracked U.S. debt downwards
after preliminary U.S. gross domestic product data showed the
world's biggest economy grew at an annualised rate of 3.6
percent in the third quarter, higher the 3.0 percent forecast.
The 10-year gilt yield peaked at 2.934 percent,
a level last seen on Sept. 23. But the daily move was small,
with the gilt's yield up just 2 basis points at 2.92 percent at
1700 GMT, in line with higher U.S. Treasury yields.
John Wraith, fixed income strategist at Bank of America
Merrill Lynch, said the strong data reinforced expectations that
the U.S. Federal Reserve would start to wind down its purchases
of Treasuries early next year at the latest.
'As long as that doesn't derail their recovery, we can
expect yields to rise over the next year or so,' he said.
However, gilts outperformed German government debt , with the yield spread tightening by 4 basis points
on the day to its narrowest since Nov. 29 at 105 basis points,
well off Monday's eight-year high of 112 basis points.
Wraith said the latest move reflected efforts by the
European Central Bank to ensure future liquidity operations
could not be used to fund carry trades, denting the appeal of
euro zone debt, rather than Britain's improved fiscal outlook.
The fact that ECB President Mario Draghi gave no hint that
further easing was on the agenda at a monthly news conference
also weighed on German debt prices, causing them to underperform
Finance minister George Osborne revised down his forecast
for Britain's public sector net borrowing for the current
financial year by 8.6 billion pounds ($14.0 billion), and for
2014/15 by 13.3 billion pounds on the back of a stronger growth
However the short-term effect on gilt issuance will be
small, with the UK Debt Management Office revising down its
issuance plans for the remainder of the financial year by just 2
billion pounds, and using the rest of the shortfall to reduce
issuance of short-dated Treasury bills.
Moreover, previous strong growth and public finance data
meant the improvement was largely priced into the market - and
indeed Thursday's downward revisions to borrowing were slightly
less than some analysts had expected, Wraith said.
Gilt prices fell slightly just after the DMO's issuance
statement, and ratings agency Moody's said that although the new
borrowing forecasts were positive, they were not enough for it
to return Britain's credit rating to triple-A.
'The overall message was pretty much as expected by the
market ... it's about as low-key as you can get,' Wraith said.
* March gilt future 107.49 (-0.16)
* March short sterling 99.435 (+0.005)
* 10-year yield 2.92 percent (+2 bps)
-------------------- KEY MARKET DATA---------------------------
Long Gilt futures Gilt benchmark chain
Short Stg futures Cash market quotes
Deposit rates Sterling cross rates
UK debt speedguide
-------------------KEY MARKET REPORTS--------------------------
Euro Debt Dollar
U.S. Treasuries Debt reports
------------------- GILT STRIPS DATA --------------------------
Gilt strips data All gilt strips
Gilt strips IO Gilt strips PO
A list of all the strippable British gilts
($1 = 0.6127 British pounds)
(Editing by Hugh Lawson)
Keywords: MARKETS BRITAIN GILTS
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