Bloomberg News

Gilts Rise, Pound Declines as Stocks Slump, Italy Issues Bonds

September 13, 2011

Sept. 13 (Bloomberg) -- U.K. 10-year government bonds gained for a third day and the pound dropped versus the dollar as stocks declined across Europe and Italian borrowing costs surged at a debt sale.

Two-year gilt yields were five basis points away from a record low after a report showed U.K. house-price expectations fell last month. The 10-year gilt stayed higher as a report showed U.K. inflation in August matched the fastest pace since October 2008. The FTSE 100 Index of stocks fell 0.4 percent while the Stoxx Europe 600 Index lost 0.5 percent.

“The theme remains one of support for quality bonds,” said Orlando Green, a fixed-income strategist at Credit Agricole SA in London. “Risk sentiment is providing underlying support for gilts. We have a number of event risks today.”

The benchmark 10-year gilt yield fell five basis points to 2.33 percent as of 10:20 a.m. in London, after reaching 2.18 percent yesterday, the least since at least January 1989, when Bloomberg started collecting the data. The 3.75 percent bond due September 2020 rose 0.465, or 4.65 pounds per 1,000-pound ($1,582) face amount, to 112.545. Two-year yields were little changed at 0.54 percent. They fell to a record low 0.49 percent on Sept. 12.

The Royal Institution of Chartered Surveyors’ real-estate price expectations measure fell to minus 23 last month from minus 13. The number of real-estate agents and surveyors saying prices fell last month exceeded those seeing gains by 23 percentage points, compared with 22 percentage points in July, the London-based group said today.

Italian Sale

Italy sold 3.9 billion euros of a new 5-year benchmark bond at an average yield of 5.6 percent today, compared with 4.93 percent the last time securities of a similar maturity were sold on July 14.

Demand was 1.28 times the amount on offer, compared with 1.93 times at the last sale.

The pound dropped against the dollar for a fourth day, losing 0.4 percent to $1.5799, and was 0.7 percent weaker at 121.63 yen. It was little changed at 86.28 pence per euro after appreciating yesterday to the strongest level since March 3.

The pound has depreciated 4.5 percent in the past 12 months against a basket of nine major peers, the second-worst performer after the dollar, which fell 6.8 percent, according to Bloomberg Correlation-Weighted Currency Indexes.

Gilts have returned 3.6 percent this month, compared with 2.9 percent for German government bonds and 1.2 percent for U.S. Treasuries, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies.

--Editors: Matthew Brown, Nicholas Reynolds

To contact the reporters on this story: Lukanyo Mnyanda in Edinburgh at lmnyanda@bloomberg.net

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


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