Bloomberg News

U.K. Two-Year Yields Approach Record Low as Jobless Claims Rise

September 14, 2011

Sept. 14 (Bloomberg) -- U.K. two-year note yields fell to within three basis points of a record after a report showed jobless-benefit claims increased last month, boosting the case for central-bank asset purchases to revive economic growth.

Gilts pared earlier gains as stocks advanced, sapping demand for safer assets. Moody’s Investors Service said it cut the long-term credit ratings of Credit Agricole SA and Societe Generale SA, citing their exposure to Greece. The pound weakened for a fourth day versus the yen.

“Gilts have been trading in anticipation of more quantitative easing,” said Vatsala Datta, an interest-rate strategist at Lloyds Bank Corporate Markets in London. “People don’t want to sell core paper” amid the euro area’s debt crisis, she said.

Two-year yields were little changed at 0.56 percent at 4:42 p.m. in London, after slipping to a record 0.49 percent on Sept. 12 and 0.52 percent earlier today. The 4.5 percent note due March 2013 traded at 105.79. The 10-year yield climbed two basis points to 2.43 percent.

Jobless benefit claims rose 20,300 in August after gaining a revised 33,700 in July, the Office for National Statistics said today in London. That compared with a 35,000 median estimate of economists in a Bloomberg News survey.

Bonds also gained after pay growth at Britain’s factories slowed in the three months through August. The average pay settlement among manufacturers dropped to 2.5 percent from a 2.7 percent gain in the quarter through July, the Engineering Employers Federation and JAM Recruitment said today.

More QE

Bank of England officials may need to buy as much as 100 billion pounds of securities in a new round of quantitative easing within three months, policy maker Adam Posen said yesterday. The central bank bought 200 billion pounds of bonds in a program that ended in early 2010.

The pound declined 0.5 percent to 120.812 yen after dropping to 120.711 yen, the weakest since January 2009. Sterling fell 0.3 percent to 86.98 pence per euro, and lost 0.2 percent to $1.5752.

Moody’s put Credit Agricole and Societe Generale, along with BNP Paribas SA, on review for a possible downgrade on June 15, citing the risks posed by their investments in Greece.

Demand for the relative safety of U.K. debt was tempered as the Stoxx Europe 600 Index gained 1.5 percent amid optimism the region’s debt crisis can be contained.

Gilts have returned 3.3 percent this month, compared with 2.7 percent for German government bonds and 1 percent for U.S. Treasuries, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies.

--With assistance from Scott Hamilton, Jennifer Ryan and Svenja O’Donnell in London. Editors: Matthew Brown, Daniel Tilles

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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