Stronger-than-expected economic growth in continental Europe and the Middle East ceasefire prompted gilts to retreat across the board. Yesterday’s hold in hostilities in Lebanon and the downgrading by the Government of its terror alert threat from “critical” to “severe” triggered an unwinding of the safe-haven trades in which money had been switched from equities into bonds.
Yet gilts were also pressured by figures showing a 0.9 per cent rise in second-quarter GDP in the eurozone, the biggest gain for six years. The September gilt future shed 14p to £108.50 on turnover in 50,000 contracts. Treasury 4¼ per cent 2011 dropped 13p to £97.29, with Treasury 6 per cent 2028 off 21p at £121.41. There were no new issues in sterling, leaving attention focused on today’s announcement by the Debt Management Office on the size of next week’s auction of index-linked Treasury 1¼ per cent 2027. Gilt analysts expect a bond of about £1 billion.