*

Two-year and 10-year gilts on course for sharpest price

falls in

over a year

*

Finance minister Rachel Reeves downplays bond market moves

*

BoE rate cut expectations reduced due to budget's

inflation

impact

By David Milliken

LONDON, Nov 1 (Reuters) - British government bond prices

fell for a third day following finance minister Rachel Reeves'

first budget, putting them on course for their biggest weekly

drop in a year, although Friday's selling was less heavy than on

the previous two days.

Two-year gilt yields were about 3 basis points

higher than Thursday's close at 4.47% at 0927 GMT, while 10-year

and 30-year gilt yields were about 4-5

bps higher at 4.49% and 4.93% respectively.

All the yields were below levels reached mid-afternoon on

Thursday during the sharpest point of the selloff so far, when

10-year yields hit a one-year high of 4.526%.

The spread between five-year gilt and Bund yields

stood at 207 basis points, its widest since

September 2023 apart from Thursday's peak of 208.9 bps.

"Gilts have had a rollercoaster 48 hours and have materially

underperformed other government bond markets of late," Mark

Dowding, chief investment officer at RBC Bluebay Asset

Management, wrote in a note to clients. "It may now be that much

of the bad news is 'in the price'."

Over the course of a week, two-year and 10-year gilts are on

course for their sharpest price falls in more than a year.

British finance minister Rachel Reeves late on Thursday

downplayed the moves in the bond market.

"Markets will move on any given day but we have now put our

public finances on a firm footing," Reeves told Channel 4 News

in an interview.

Bond strategists and economists said the fall in gilt prices

was driven by reduced expectations for BoE rate cuts after

official forecasters said Wednesday's budget would push up

inflation next year, in addition to higher gilt issuance.

Markets priced in an 82% chance of a quarter-point Bank of

England rate cut next week and saw interest rates falling by a

total of 0.87 percentage points by the end of 2025.

This week's falls in bond prices have been less severe than

two years ago when former Prime Minister Liz Truss'

"mini-budget" sidelined official forecasters and planned to

borrow to cut taxes which she had hoped would boost growth.