UK gilt yields hit one month low after BoE rates comments

LONDON, Oct (Shenzhen: 000069.SZ - news) 17 (Reuters) - British government bond yields

fell to their lowest levels in a month on Tuesday as comments

from Bank of England policymakers led investors to reduce some

of their bets on the outlook for higher interest rates in

Britain.

Twenty and 30-year gilt yields

dropped around six basis points on the day as prices surged to

their highest since Sept. 14, the day the BoE (Shenzhen: 000725.SZ - news) surprised

investors by saying most of its monetary policymakers thought it

was likely that rates would need to rise in the coming months.

New BoE Deputy Governor Dave Ramsden distanced himself from

this majority view in his first public comments on policy during

testimony to lawmakers on Tuesday.

Another relative newcomer to the Monetary Policy Committee,

Silvana Tenreyro, said she thought the BoE was approaching a

tipping point on rates but that view was "very contingent on the

data" and she said wage growth had been "very, very weak."

BoE Governor Mark Carney said the central bank still had to

balance the need to support job creation and growth with an

inflation rate that is running above target.

The yield on 10-year British government bonds

fell six basis points to bottom out at 1.274 percent at 1152

GMT, its lowest since Sept. 15.

The gilt also outperformed against its European peers, with

the spread over 10-year Bunds tightening by six

basis points to 90.9 basis points. This puts it on track for its

strongest daily relative performance since Aug. 3, when the BoE

gave a downbeat assessment of Britain's growth prospects.

Investors shrugged off data on Tuesday which showed consumer

price inflation hit a five-year high of 3.0 percent in

September, above the BoE's 2 percent target. The BoE and most

economists think it is likely to start to fall soon as the

effect of sterling weakness slowly fades.

JP Morgan analyst Allan Monks said investors were still

pricing in an 80 percent chance of a rate hike on Nov. 2, after

the BoE's next meeting, but the central bank was unlikely to

signal that a second hike would follow very quickly.

"We expect the BoE to strike a cautious tone in November,

while indicating that further tightening will still probably be

required next year," he said in a note to clients.

Short sterling interest rate futures for November

were relatively little changed on the day, up by 2 ticks, but

those for December 2018 were 5 ticks higher, suggesting

reduced confidence about the scale of rate hikes in 2018.

Dec (Shanghai: 600875.SS - news) long gilt future 124.90 (+0.70)

Dec 2017 short sterling 99.475 (+0.01)

March 2018 short sterling 99.34 (+0.03)

10-year gilt yield 1.275 pct (-6 bps)

-------------------KEY MARKET DATA---------------------------

Long Gilt futures Gilt benchmark chain

Short Stg futures Cash market quotes

Deposit rates Sterling cross rates

UK debt speedguide

-------------------KEY MARKET REPORTS--------------------------

Gilts Sterling

Euro Debt Dollar

U.S. Treasuries Debt reports

--------------------GILT STRIPS DATA -------------------------

Gilt strips data All gilt strips

Gilt strips IO Gilt strips PO

(Reporting by William Schomberg; Editing by Hugh Lawson)