Gilt and short sterling futures traded lower, tracking range-bound overseas markets, after strong data on the UK manufacturing sector led traders to increase bets that the Bank of England will raise interest rates again early next year.
While the CBI’s survey for November had been expected to show a rebound from the previous month, the headline orders reading still topped market expectations and export orders reached their highest since August 1995.
Dealers also said that minutes from the Debt Management Office meetings with market-makers and end investors also dragged on the market, where trading was muted ahead of Thursday’s holiday in the United States.
Most gilt-edged market- makers expressed a preference for more long-dated debt and favoured the launch of the first 40-year index-linked gilt, the DMO said.
The short sterling strip was between one and two ticks lower. December gilt futures settled eight ticks lower at 109.75. In the cash market, yields on ten-year gilts were flat at 4.54 per cent.