Bonds: Gilts jump as investors remain cautious ahead of Brexit referendum

These were the movements in some of the most widely-followed 10-year sovereign bond yields:

US: 1.84% (-0bp)

UK: 1.37% (-6bp)

Germany: 0.14% (+0bp)

Spain: 1.50% (+2bp)

France: 0.47% (+0bp)

Italy: 1.38% (+3bp)

Portugal: 3.12% (+6bp)

Greece: 7.28% (+1bp)

Japan: -0.11% (-1bp)

Gilts shot higher in what was otherwise a rather unremarkable day of trading in sovereign bond markets on Wednesday, as traders waited on the outcome of key risk events over the next two days.

As was usually the case, such advances came against a backdrop of sharp falls in the pound as the latest odds on Brexit from bookies pointed to a somewhat more evenly balanced contest between the 'Leave' and 'Remain' camps ahead of the 23 June referendum on membership of the European Union, although for the most part analysts appeared to be unconvinced that Brexit would finally carry the day.

Just before noon, PaddyPower announced it was cutting the odds on the UK leaving the EU from 9/2 to 5/2, pushing the probability of a Brexit victory from about 22% to 29%.

In parallel, the latest digital opinion poll from YouGov, on behalf The Times newspaper, continued to put both camps neck-and-neck at 41%.

Earlier in the day, the Debt Management Office successfully auctioned £2,750m in five-year debt, but the bid-to-cover ratio dropped pff from the 2.11 seen the last time around to 1.6%.

The auction followed the release of data showing that M4 lending, excluding intermediate other financial corporations, the Bank of England’s preferred measure of bank lending, dropped by 0.1% month-to-month in April, versus the average increase of 0.6% seen over the previous six months.

"An exit from the EU, however, undoubtedly would impair the supply of credit to the private sector," economists at Pantheon Macroeconomics said in a research note sent to clients.

Around half of banks’ short-term wholesale funding was denominated in foreign currencies, they pointed out, adding that that source of funding would become more expensive, especially if the pound fell sharply in the wake of a Brexit.

Nonetheless, it would not fell any of the UK´s lenders and banks would be able to pass on their increased costs to clients, although as credit markets jammed up the UK would fall into recession, they went on to say.

With that in mind, Samuel Tombs, Pantheon´s chief UK economist, said data out next Friday would "show the complete picture on whether overseas banks operating in the UK pulled back lending to British institutions."