Bargain hunting helped gilts to break a five-day losing streak, mirroring a technical rebound across the Atlantic as confidence remained fragile.

With world markets defining the tone, there was no noticeable reaction to firmer-than-expected retail sales data and a Bank of England survey showing inflation expectations remained elevated last month.

The September gilt future settled higher by two ticks at 103.79, while benchmark ten-year gilts steadies at 5.45 per cent having reached a nine-year high above 5.5 per cent during the previous session.

Meanwhile, short sterling rose by as much as four ticks across the strip.

Futures prices show investors have almost fully priced in that UK interest rates will reach 6 per cent by the end of the year, from the current six-year high of 5.5 per cent.

The UK market’s bounce came as Treasuries rallied for a second day, with technical demand remaining firm in spite of data showing US producer prices coming in well ahead of expectations.

Some additional support was provided by gossip that China had started buying US Treasuries again. Chinese authorities are said to have been refraining from buying US paper to side-step possible claims of currency manipulation.

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