U.K Gilt yields fall after government bonds auction

The United Kingdom 10-year gilt yield fell 7 bps on Tuesday (the lowest since 1st March) after demand for U.K. government 5-year bonds rose to the highest since 2013 at an auction of the securities.

The U.K government sold 2.75 billion pounds ($3.9 billion) of 2021 bonds with investors bidding 2.01 times the targeted amount with an average yield of 0.801 pct. The U.K. previously sold 3.5 billion pounds of 2021 bonds at an average yield of 0.86 pct on March 2. The bid-to-cover ratio was 1.54.

“There was particularly high attention on this auction since it was the first since the changes. So it’s important that there was such a strong result. The fact the bond came close to market is particularly positive.” said Daniela Russell, a portfolio construction associate at Legal & General Group Plc in London.

At an auction of 5-year gilts in January, the bid-to-cover ratio was 1.07, the lowest since a 2009 sale of 40-year securities that missed its sales target. The gilt market has faced increasing challenges as market makers contend with regulations that constrain the use of their balance sheets.

Lastly, the market will primarily focus on the upcoming FOMC meeting minutes on Wednesday. Although, we do not anticipate any market movers from the coming minutes and except the same hint for increase in policy rates at the June FOMC meeting.