Bond Selloff Reduces Gilt Demand to Record Amid Greek Optimism

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Demand for U.K. government bonds dropped to the lowest on record at an auction of 10-year debt on Tuesday amid a selloff in fixed-income securities globally.

The yield on benchmark 10-year gilts climbed the most in four weeks as German bunds and U.S. Treasuries also declined. Investor appetite for haven assets was diminished on signs that both Greece and its international creditors are moving closer to crafting a deal that will release aid to the indebted nation and avert a default.

The U.K. Debt Management Office sold 3.25 billion pounds ($5 billion) of gilts due in September 2025. The securities were priced with an average yield of 2.024 percent and the bid-to-cover ratio, which gauges demand by comparing total bids with the amount of bonds allotted, dropped to 1.19, the lowest since Bloomberg began collecting the data in 1998.

The “global risk backdrop” contributed to the weak demand, said Vatsala Datta, a U.K. rates strategist at Royal Bank of Canada in London. “Some positive headlines out of Greece is generally leading to weakness in the core fixed-income market and so outright demand would have been curtailed because of that.”

Demand at gilt auctions had picked up since the U.K. election last month and a five-year sale on May 14 had the highest bid-to-cover this year.

The yield on benchmark 10-year gilts rose 10 basis points, or 0.1 percentage point, to 1.95 percent as of 4:20 p.m. London time. That’s the biggest increase since May 5. The 5 percent bond due in March 2025 dropped 1.055, or 10.55 pounds per 1,000-pound face amount, to 126.98.

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