SHORT covering and the expectation that subsequent US Treasury bond sales will fare better than Tuesday’s auction of three-year notes enabled gilts to bounce off their lows.
After the poor response to Tuesday’s offering — with bids for the $24 billion (£15 billion) of bonds only 1.32 times the total amount on offer — dealers took the view that today’s $18 billion sale of five-year notes and tomorrow’s $18 billion auction of ten-year bonds would meet with stronger demand. That optimism was heightened by the buying back of short positions which were taken out ahead of the first auction.
With the retreat in world stock markets providing further support, the September gilt future put on 54p at £119.45. Among conventional issues, Treasury 8½ per cent 2005 added 6p at £109.99, with Treasury 8 per cent 2021 118p better at £140.85.
In the single currency zone, bunds advanced despite a weak response to a €7 billion (£4.9 billion) auction of ten-year bonds and a mixed batch of economic data. German jobless numbers rose after two months of decline, while manufacturing orders rose 2.3 per cent in June, against forecasts of a 0.6 per cent gain.
HSBC was the sole feature in the corporate primary market after issuing a 30-year £500 million bond bearing a coupon of 5.375 per cent in the wake of Monday’s interims.