Bloomberg News

Gilts Rise Most in Three Weeks as Stocks Slide; Pound Advances

September 30, 2011

Sept. 30 (Bloomberg) -- U.K. 10-year gilts rose the most in three weeks as a decline in stocks around the world spurred demand for the perceived safety of government debt.

The securities gained for a second day as reports showed Chinese manufacturing shrank, German retail sales slumped, and U.S. consumer spending slowed. The pound rose against all its major counterparts after a research group said U.K. consumer sentiment increased this month. Sterling has gained 3.5 percent this quarter, the third best performer after the yen and dollar among 10 developed-market currencies tracked by Bloomberg Correlation-Weighted Indexes.

“Gilts are moving higher as equities weaken,” said Orlando Green, a fixed-income strategist at Credit Agricole Corporate & Investment Bank in London. “It’s a risk-off day, reversing much of what we’ve seen over the past week. Gilts are moving on the back of equities, rather than anything fundamental.”

The yield on the 10-year gilt fell 10 basis points to 2.43 percent at 4:46 p.m. in London, after dropping as much as 13 basis points, the most since Sept. 5. The 3.75 percent security due in September 2021 rose 0.930, or 9.30 pounds per 1,000-pound ($1,564) face amount, to 111.585. The two-year rate was little changed at 0.57 percent.

The Stoxx Europe 600 Index of shares dropped 1.2 percent and the FTSE 100 Index declined 1.3 percent.

Gilts gained as the Federal Statistics Office said German retail sales fell 2.9 percent last month. HSBC Holdings Plc and Markit Economics said their Chinese purchasing managers’ index was unchanged at 49.9 in September, a third month it has stayed below 50 which indicates a contraction. Growth in U.S. consumer spending slowed to 0.2 percent in August from 0.7 percent in July, the Commerce Department said.

Quarterly Return

Gilts have returned 8.1 percent this quarter, more than the 7.2 percent increase in German bunds and 6 percent gain from U.S. Treasuries, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies.

Bank of England policy makers have indicated they are becoming more concerned the economic recovery will cool further and most of them said this month they see expanding stimulus as “increasingly probable.”

Gilts rose yesterday amid speculation the Bank of England will increase its 200-billion pound bond purchase plan as soon as next month. The central bank reports its next interest-rate and bond-buying decisions on Oct. 6.

The pound snapped a two-day decline versus the euro after GfK NOP Ltd. said its index of consumer sentiment gained 1 point from August to minus 30. A measure of households’ expectations for the economy over the coming 12 months climbed 4 points to minus 27, the London-based research group said.

GfK said while the increase is not statistically significant, it is “psychologically important” as it halts a recent decline in sentiment.

The U.K. currency strengthened 1.1 percent to 86.08 pence per euro, and gained 0.3 percent to 120.38 yen. Sterling was little changed at $1.5632, erasing a drop of 0.6 percent.

--With assistance from Scott Hamilton in London. Editors: Nicholas Reynolds, Mark McCord

To contact the reporter on this story: Keith Jenkins in London at Kjenkins3@bloomberg.net

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


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