UK government bond yields fall to lowest in over three months

[LONDON] British 10-year government bond yields fell to a three-month low on Friday, with prices buoyed by weak retail sales data and a rally in safe-haven German bond prices as French debt sagged due to political worries.

Ten-year gilt yields sank six basis points on the day to fall as low as 1.202 per cent at 1018 GMT, a level last seen on Nov 9. Five-year yields dropped four basis points to 0.416 per cent, the lowest since Oct 13.

Gilt yields initially fell after the release of unexpectedly weak January retail sales data, which offered signs that the consumer-driven economy was slowing in the face of higher inflation.

Yields dropped further as French government bonds underperformed German debt on fresh concern that far-right leader Marine Le Pen could win the presidency in May.

Prices of 10-year gilts, which some investors treat as a safe haven, slightly outperformed benchmark German debt , and the yield premium they offered dipped under 90 basis points, a level last widely seen in October 2016.

Thirty-year gilts showed smaller gains, but Royal Bank of Canada said there was scope for them to outperform 10-year debt once the market had digested an issue of several billion pounds of 50-year index-linked bonds due next week.

"The long end of the gilt curve has started appearing cheap and we see a number of factors that could aid a move flatter over the coming months," RBC strategist Vatsala Datta said.

REUTERS