UK bond markets will receive their greatest injection of cash this week when gilts and corporate bonds worth £28bn (€41bn) are redeemed and coupon payments of £10bn flood the market with cash.

Thursday is the biggest day of coupon payments in the British bond market calendar and this month also sees the greatest volume of redemptions. Nearly £50bn will turn to cash in the fourth quarter as £43.4bn in gilts and corporate bonds and £5.3bn in maturing floating-rate notes is paid, almost double the £26bn in the same period last year, according to BNP Paribas. As fixed income managers must reinvest, greater demand for bonds combined with December's lower liquidity should raise prices. However, traders and fund managers say much of the movement took place last month as investors pre-empted this week's injection. Gary Hibbard, head of sterling credit trading at Barclays Capital, said: "It's been on the radar for a couple of months. People were aware it was a much bigger redemption month than in the past and a lot of institutions have reacted in advance to negate the need to jump in on December 7 when most of the gilts money comes through." Although this week's coupons and December redemptions are priced into the market, Hibbard said there was some way to go. "I think it will affect spreads. If a small proportion of the cash comes back when liquidity is diminishing, the impact should be generally positive for spreads," he said. Strong bond issuance has also muted the effect, helping to soak up liquidity, while some pension funds will use the cash to make benefit payments, not reinvest it in bonds. The European corporate bond markets will go through the same experience next month. Grant Ashton, head of European credit trading at Barclays Capital, said: "The market tries to get itself long coming into the new year in anticipation of these calendar flows but, with spreads as tight as they are, many clients are short relative to their benchmarks. This could well lead to aggressive buying by clients next year."