Bloomberg News

Gilts Rise as Investors Seek Safest Assets on Debt-Plan Turmoil

October 22, 2011

Oct. 22 (Bloomberg) -- U.K. government bonds rose for the first time in four weeks as investors sought a haven from uncertainty over whether European officials will be able to reach agreement on a solution to the European debt crisis.

The pound rose to a six-week high against the dollar and posted its first weekly gain in three versus the euro as a split emerged between Europe’s two largest economies over boosting the firepower of a bailout fund. A weekend deadline for a solution to the euro-region’s debt woes was pushed back to Oct. 26 after Germany and France said the European Union needs more time to seal a “global and ambitious” accord.

“There are some obvious problems over there which are slowly being resolved but not to the market’s taste and what we’ve seen in higher-grade debt markets this week reflects that uncertainty,” said Eric Wand, a fixed-income strategist at Lloyds Bank Corporate Markets in London.

The 10-year gilt yield dropped seven basis points, or 0.07 percentage point, in the week to 2.54 percent at 4:20 p.m. London time yesterday. The two-year yield was little changed at 0.58 percent.

Benchmark gilt yields have dropped around 102 basis points since the start of the second half as global policy makers have struggled to find a solution to the euro-area’s debt woes and stem contagion to the region’s larger economies. Bank of England Governor Mervyn King called for a “bold response” to the crisis in an Oct. 18 speech.

Bond Sale

U.K. government debt has returned 12 percent this year, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies, surpassing the 7.2 percent return for German bunds and 7.9 percent gain for U.S. Treasuries.

The U.K. plans to sell an inflation-linked bond maturing in the 50-year area through banks before the end of October, the Debt Management Office said.

“The syndication will go pretty well,” said Wand. “There’s plenty of pent-up demand for it on various metrics.”

Sterling gained 0.8 percent in the week to trade at 87.02 pence per euro. It advanced 0.9 percent against the U.S. currency to buy $1.5957, after touching $1.5962 yesterday, the highest since Sept. 9. The pound fell 0.5 percent to 121.55 yen.

--Editors: Mark McCord, Nicholas Reynolds

To contact the reporter on this story: Lucy Meakin in London at

To contact the editor responsible for this story: Daniel Tilles at

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