Gilts finished lower on the day after hawkish comments from an ECB official overshadowed figures showing a fall in UK factory gate inflation.
UK government bonds initially rallied on domestic production data that revealed the biggest monthly drop in core output prices since December 2004. However, investors were wary of chasing gilts higher before today’s UK consumer price data, leaving maturities to succumb to profit-taking in line with continental European markets. Bunds were unsettled by a Handelsblatt interview with Jürgen Stark, an ECB member, who expressed doubts that higher interest rates will impair economic recovery. The September gilt future shed 25p at £109.76. Treasury 4¼ per cent 2011 fell 14p to £98.04, with Treasury 6 per cent 2028 off 33p at £124.23.
With corporate issuance scarce, attention turned to today’s announcement by the Debt Management Office of the size of next week’s auction of 2011 and 2017 bonds.