Gilts held steady, outperforming their European counterparts after a well-received five-year auction.
While strong data on the housing market weighed on interest-rate futures, this was offset by the continued appreciation of the pound.
Britons accumulated nearly £10 billion more in mortgage debt last month, the highest since September 2003, when house prices were rising at double-digit rates. There was also a strong rise in mortgage approvals, an indicator of future demand, which hit levels not seen in almost three years.
The data intensified expectations that interest rates may have to rise again, with short sterling interest-rate futures easing two to three ticks in contracts from March 2007. Markets are pricing in less than a 50 per cent chance that that the Bank of England will lift rates early next year. Meanwhile, demand remained strong on the supply side, a £2.5 billion sale of UK gilts due 2011 attracting bids worth more than twice the value of paper on offer.
December long gilt futures settled five ticks lower at 109.78.
Advertisement
In the cash market, yields on ten-year gilts rose one basis point, while yields on five-year gilts were barely changed.