LONDON - 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.

(Reporting by William Schomberg, writing by David Milliken; Editing by Hugh Lawson)