U.K. longer-dated government bonds underperformed shorter-maturity peers as the country hired banks to sell debt due in 40 years or longer this month.
Thirty-year gilts fell for a third day, pushing yields to the highest in more than a week, as Greece handed proposals to its creditors that French President Francois Hollande said were credible, sapping demand for havens. Gilts fluctuated this week, with direction driven by developments in Greece’s negotiations and as the U.K. Debt Management Office reduced its planned sales for fiscal year 2015/16 less than some banks predicted. The pound weakened against the euro as a report showed U.K. construction unexpectedly dropped in May.
“We’ve got this syndication coming up and the supply backdrop for the next few months is relatively heavy,” said Simon Peck, a rates strategist at Royal Bank of Scotland Group Plc in London. “Greece has been at the forefront of price action. It looks like we will end up with some sort of deal and that’s been a positive for risk assets and core fixed income has sold off.”
Yields on 30-year gilts rose 11 basis points, or 0.11 percentage point, to 2.80 percent as of 4:22 p.m. London time, after climbing nine basis points in the previous two days. The 3.5 percent bond due in January 2045 dropped 2.385, or 23.85 pounds per 1,000-pound ($1,549) face amount, to 113.92. The yield reached 2.82 percent earlier on Friday, the highest since July 2.
The extra yield, or spread, that investors get for holding the 30-year bonds instead of those due in two years increased eight basis points to 224 basis points.
The DMO said on July 8 that it will reduce gilt sales this financial year by 3.5 billion pounds to 127.4 billion pounds. Banks including Royal Bank of Canada, Scotiabank and Morgan Stanley forecast offerings falling to about 120 billion pounds.
The pound depreciated 0.4 percent to 72.07 pence per euro, pushing its decline this week to 1 percent, the biggest since the period through June 5. Sterling gained 0.7 percent to $1.5490.