View from City Road: Gilt-edged cloud over Bank's party

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No sooner had the Queen concluded her visit to the Bank of England to celebrate its 300th birthday than the gilts market decided to poop the party. Unexpectedly strong US durable goods orders triggered a slump which gathered in pace as the afternoon drew to a close.

The slide fortunately came after the Bank had safely auctioned off pounds 2bn of long-dated stock, which anyway received a grudging rather than a rapturous reception. The auction was covered only 1.29 times, compared with the expected 1.5, although the gap between the highest and lowest accepted bid was reassuringly tight.

Dealers none the less went home in a state of some nervousness. Selling of other European government bonds during the afternoon dragged the gilt futures market down through what technical analysts regard as an important psychological barrier. Some market makers even unloaded the stock they had bought during the auction barely three hours earlier.

The market was also unnerved by the proximity of today's meeting between the Chancellor and the Governor of the Bank to discuss interest rates, and next Tuesday's quarterly inflation report from the Bank. Few players expect the much-vaunted pre- emptive rise in interest rates to take place yet, but even the possibility was enough to send butterflies fluttering in a few stomachs.

Talk of a fresh bear market may be unnecessarily alarmist, but it would not be surprising if the nervousness persists well into next week. Increasingly certain talk of pre-emptive interest rate rises does nothing to help.