YIELDS on long-dated paper rallied to a three-month high as signs of increased government issuance on both sides of the Atlantic and stronger than expected US producer price data sent gilts lower across the board.
The initial sell-off was triggered by the announcement from Agence France Trésor that it will auction at least €3 billion of 50-year government bonds next week, making it the first government issuer to tap into growing investor demand for ultra-long debt. That development, prompted by unusually low global borrowing costs, fuelled speculation that the US Treasury may reintroduce sales of 30-year bonds after suspending their auction in October 2001.
Aside from the threat of increased supply, bond markets were rattled by US producer price data, the core measure of which rose 0.8 per cent in January, the biggest monthly gain for more than six years.
The March gilt future dropped 53p at £110.31, with Treasury 4 per cent 2009 off 11p at £97.66 and Treasury 6 per cent 2028 108p lower at £121.04.