Bloomberg News

U.K. Gilts Decline as BOE Rejects Offers Against 8.75% 2017 Bond

October 10, 2011

Oct. 10 (Bloomberg) -- U.K. government bonds extended declines after the Bank of England rejected all bids against one of the bonds it planned to buy today as part of its quantitative-easing program.

Ten-year yields reached the most this month after the central bank said in a statement it decided “to reject all offers against UKT 8.75 25/08/17 following significant changes in its yield in the run up to the auction.” Gilts had dropped earlier, along with bunds, after Germany and France’s leaders said they will draw up a plan to recapitalize banks and stop Greece’s debt crisis spreading, sapping demand for the safest government assets.

The bond was rejected because traders had been pushing the price up “aggressively, obviously in the hope that they’d be able to sell it to the Bank of England,” said John Wraith, a fixed-income strategist at Bank of America Merrill Lynch Global Research in London. “The BOE rejected it and that might have given people a bit of a shock. There would have been some people who hoped that the bank would be willing to pay significantly higher prices for the bonds.”

Ten-year gilt yields were eight basis points higher at 2.55 percent at 3:54 p.m. in London. The 3.75 percent security maturing in 2021 fell 0.775, or 7.55 pounds per 1,000-pound ($1,567) face amount, to 110.415. Two-year note yields were two basis points higher at 0.64 percent.

Asset Purchases

The 8.75 percent 2017 security fell 0.285 to 139.69 after rising to as high as 140.78 before the BOE operation.

The Bank of England last week boosted its asset-purchase program, known as quantitative easing, by 75 billion pounds to 275 billion pounds in a bid to revive U.K. growth. The central bank, which expects to complete the new round of purchases in four months, said slowing global growth and the turmoil in Europe threaten the recovery.

The euro rose against the dollar and the yen after German Chancellor Angela Merkel and French President Nicolas Sarkozy pledged to deliver a plan to help banks and repeated a commitment to keep Greece in the single-currency area.

“There’s a general market selloff on hopes that Europe’s about to get its house in order,” Wraith said.

--Editors: Mark McCord, Peter Branton

To contact the reporter on this story: Emma Charlton in London at echarlton1@bloomberg.net

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


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