Bonds: Demand for longer dated Gilts falls to least since 1998

Demand for 10-year Gilts fell to a record low at the Debt Management Office’s latest auction.

The DMO managed to hive off £3.25bn in long-term securities due in September 2025 but the bid-to-cover ratio, which measures how oversubscribed a sale is, fell to 1.19 – the least since 1998 - according to Bloomberg data.

That set off a large rise in the yields on UK Gilts.

In parallel, the yield on US 10-year Treasury notes rose sharply after data coming in revealed a surge in US light vehicle sales, which jumped by 7.6% month-on-month to reach an annualised pace of 17.7m.

Meanwhile, a stronger than expected reading on euro area consumer prices, alongside cautious comments from a US Federal Reserve official, saw the single currency snap higher on Tuesday in its cross versus the US dollar.

The Eurozone’s consumer price index (CPI) increased at a 0.3% year-on-year pace in May, up from a 0.0% clip in the month before (consensus: 0.1%).

That sent the euro/dollar rocketing higher by 2.03% to 1.1149.

Acting as a backdrop, overnight news broke that Greece’s creditors had held a secret meeting to reach an agreement on a proposal for cash in exchange for reforms to propose to Athens.

Remarks in the afternoon from Fed Governor Lael Braenard that the slowdown in the US economy during the first half of the year may be more significant than previously expected added to the euro’s momentum. Braenard believes the US central bank must watch patiently before it begins to hike rates.