Bloomberg News

Gilt Yields Reach 3-Week High as Greek Optimism Curbs Safety Bid

June 29, 2011

June 29 (Bloomberg) -- U.K. government bonds fell for a third day after Greek lawmakers voted in favor of an austerity plan needed to avoid default, boosting investor appetite for higher-yielding assets.

The declines raised 10-year gilt yields to the highest in three weeks, widening the spread over two-year note yields to the most since August. The pound recovered from an almost two- month low against the euro after Greek Prime Minister George Papandreou clinched 155 votes in the 300-seat parliament, enough to pass the first part of an austerity plan aimed at meeting European Union requirements for further aid.

“There’s a bit more appetite for risk today, and we’re seeing strong moves in equities, so naturally bonds will sell off in that environment,” said Orlando Green, a fixed-income strategist at Credit Agricole SA in London. “There’s a bit more optimism about the Greek situation.”

The 10-year gilt yield rose six basis points to 3.33 percent as of 4:55 p.m. in London, after reaching 3.36 percent, the most since June 8. The 3.75 percent security due September 2020 fell 0.515, or 5.15 pounds per 1,000-pound ($1,602) face amount, to 103.33. The yield on the two-year note added two basis points to 0.81 percent.

European stocks rose as Papandreou remained on course to secure a bill setting out the strategy for a 78 billion-euro ($112 billion) package of budget cuts and asset sales. The vote, overshadowed by a 48-hour strike, became the target of protests outside the parliament building that saw the police fire tear gas at demonstrators.

Stocks Rise

The Stoxx Europe 600 Index rose for a third day, adding 1.7 percent for the longest winning streak in almost two months. German 10-year bunds fell for a third day.

“Gilts are really moving in line with what bunds are doing; they’re selling off because there’s a bit less of a safe- haven demand,” said Elisabeth Afseth, a fixed-income analyst at Evolution Securities Ltd. in London.

The pound strengthened against the dollar for a third day, adding 0.4 percent to $1.6072. Britain’s currency was little changed at 89.79 pence per euro, after losing as much as 0.4 percent to 90.15 pence, the weakest intraday level since May 5.

British banks granted 45,900 home loans last month, compared with 45,400 in April, the Bank of England said today. Economists had forecast an increase to 46,300.

The U.K. central bank has held its benchmark rate at a record low of 0.5 percent since April 2009 to support growth even as inflation accelerated to 4.5 percent in May, more than twice the government’s 2 percent target.

The pound has fallen 9 percent in the past 12 months, making it the second-worst performer among 10 developed-market currencies after the U.S. dollar, according to Bloomberg Correlation-Weighted Currency Indexes.

--Editors: Mark McCord, Keith Campbell

To contact the reporter on this story: Garth Theunissen in London gtheunissen@bloomberg.net

To contact the editor responsible for this story: Daniel Tilles at dtilles@bloomberg.net


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