STRONGER than expected services sector data from both sides of the Atlantic sent UK government bonds lower on the view that last month’s interest rate cut is likely to prove the last in the current cycle.
The UK purchasing managers services index provided the initial surprise by rising at its fastest rate for more than a year in July, reading 56.6 against 54.5 in June. But those numbers were echoed by matching data from the US, where the Institute of Supply Management’s non-manufacturing index for July rose from 60.6 to 65.1, providing the biggest monthly leap in the six-year history of the survey.
But supply concerns also weighed on gilts as the Debt Management Office said it would auction £3.25 billion of Treasury 4 per cent 2009 on August 19. At the same time, the US Treasury yesterday commenced its $24 billion auction of three-year notes as part of its recently announced $60 billion issuance programme.
With a better-than-expected Halifax house price survey and above-forecast UK industrial production adding to the downward pressure, the September gilt future gave up 24p at £118.91.
Among conventional issues, Treasury 8 per cent 2005 lost 8p at £109.93, with Treasury 8 per cent 2021 settling 63p lighter at £139.67. The yield on 10-year gilts rose above 4.5 per cent, a new high for the year.