German 10-year yield gap with gilts around widest since 2010
LONDON Aug 8 (Reuters) - The yield gap between 10-year British and German government bonds stood around its widest since 2010 on Thursday on signs the UK economy is recovering faster than its euro zone counterpart.
The different speeds of recovery has been reflected in a faster rise in UK bond yields than in those on German benchmarks this year.
This move was given further momentum on Wednesday after the Bank of England's forward guidance that interest rates could stay at record lows for three more years failed to impress markets.
While recent data in the euro zone has shown tentative signs that bloc members' economies are stabilising, UK data has suggested a more robust recovery is under way.
Just this week, surveys showed rocketing British business led the way in Europe's slowly improving economy in July. Euro zone firms returned to growth, but only just.
Since the beginning of 2013, yields on 10-year UK gilts have risen 51 basis points, while equivalent German borrowing costs increased 25 bps.
"UK data seems to be improving quite markedly," Harvinder Sian, rate strategist at RBS, said.
"The data has, I think, surprised on the upside more so than in any other major region of the world and obviously the inflation has proven much more sticky."
The yield gap between 10-year UK and German yields inched up on the day to 81 basis points.
Yields on 10-year UK gilts were flat at 2.49 percent while 10-year German yields were also flat at 1.68 percent.
"The ECB has a clear easing bias, which the BoE does not," Marc Ostwald, fixed strategist at Monument Securities said.
"Indeed the BoE forward guidance has so many caveats and exemptions as to make it perhaps even more useless, despite the fact that it is pegged three years out, while the ECB is a more nebulous but shorter time horizon."
The European Central Bank left interest rates at a record low 0.5 percent last week and affirmed they would remain there for some time and could even fall further.
Despite the rise in long-dated gilt yields in the wake of the BoE's guidance, the bias of both central banks to keeping interest rates low over the short-term held the two-year yield gap in the middle of this year's ranges, around 22 bps.
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