Bonds: Gilts outperform after record demand at sale of ultra-long debt

These were the movements in the yields of the most widely followed long-term sovereign bonds:

US: 2.07% (+4bp)

UK: 1.81% (+3bp)

Germany: 0.63% (+6bp)

France: 0.96% (+6bp)

Spain: 1.81% (+5bp)

Italy: 1.66% (+7bp)

Greece: 7.64% (+5bp)

Japan: 0.31% (-2bp)

Gilts outperformed on Tuesday, but were still dragged lower as traders pared their bets for further stimulus out of the European Central Bank at Thursday’s policy meeting.

Helping to stoke buying, a sale of 50-year debt by HM Treasury was met by record demand.

No less important, speaking at Bloomberg’s London headquarters MPC hawk Ian McCafferty stuck to his call not to leave the start date for monetary tightening for “too late”.

The rate-setter thought the chances of a gradual improvement in the so-called natural interest rate by 2017 were being underestimated.

Differences of opinion at the Bank of England were also smaller than they were sometimes made out to be, he added.

“Voting is by definition a very sort of binary issue. Once you have to vote, that actually cements you into what outsiders see as a camp. But I think there’s a good deal of discussion and a good deal of agreement on all sorts of things on the MPC. The differences are that of degree rather than kind."

Acting as a backdrop, the ECB’s latest Bank Lending Survey revealed credit standards on loans to companies eased for a sixth consecutive quarter.

That fed market commentary about how the euro area’s monetary authority would refrain from adding to its current plans for QE when it meets on 22 October.

Analysts at Credit Suisse and RBS were already of that view, but both issued research notes to clients arguing that action would be called for come December.

“We continue to think that QE is most effective in buying time for policymakers to enact fiscal stimulus and structural reform,” RBS’s Alberto Gallo wrote to clients.

Bank of America-Merrill Lynch's Global Rates&Currencies team pitched in saying: "We push our central case for an announcement of QE2 from October - although still a "live" meeting, in our view - to December. We believe the dataflow is more and more consistent with an additional layer of monetary stimulus, but the ECB-speak - in particular Benoît Coeuré on Monday - suggests that a consensus may yet take some time to form at the Council.

We are not ruling out that ECB President Mario Draghi manages to "force" a decision next week, but the bar on an immediate response seems to be high."