UK gilts show heaviest underperformance since in years, Truss months aside

LONDON, May 5 (Reuters) - The gaps in yield between British 10-year government bonds and those of comparable German and U.S. bonds on Friday looked on track to finish the week at their highest levels for several years - excluding the premiership of Liz Truss. The spread between 10-year British and German bonds stood at 147 basis points (bps) on Friday as of 0910 GMT, up around a basis point from Thursday. While the spread struck an intraday high of almost 149 bps on Thursday, its present level would mark the highest weekly close seen in eight years, excluding the market turmoil associated with the short-lived Truss administration in September and October 2022. The yield spread represents the additional premium that investors demand in order to hold the debt of a particular country.

It is determined by several factors including interest rate expectations, the amount of debt issuance in the pipeline, the inflation outlook and creditworthiness. Many economists think Britain is more prone to higher inflation and weak economic growth than its peers. It was a similar story on Friday for the gap between British and U.S. bond yields, with the 10-year spread widening to 34 basis points - on track for the highest weekly close since October 2011, again excluding the Truss government. U.S. Federal Reserve Chair Jerome Powell said on Wednesday that the Fed might be at the end of its rate-tightening cycle - a contrast to the Bank of England, which financial markets expect will keep raising rates in the months ahead.
(Reporting by Andy Bruce; editing by David Milliken)

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