Bloomberg News

Gilts Advance as Dealers Offer Fewer Securities at BOE Operation

October 25, 2011

Oct. 25 (Bloomberg) -- U.K. government bonds rose after Bank of England data showed traders were reluctant to sell gilts at its asset-purchase operation today.

The advance pushed 10-year gilt yields down for the first time in three days after the central bank said it received offers worth 1.8 billion pounds ($2.9 billion) and accepted 1.7 billion pounds, for a cover ratio of 1.06. Gilts fell earlier as a so-called syndicate of banks sold 4.5 billion pounds of index- linked securities due in 2062 to yield 0.49 percent.

“Gilts are moving because of the better syndication and good buyback,” said Vatsala Datta, an interest-rate strategist at Lloyds Bank Corporate Markets in London. The cover ratio “is the best we’ve had. It was a long-end buyback and the syndication was also in the long end,” which has boosted 10- and 30-year gilts she said.

The 10-year yield fell five basis points, or 0.05 percentage point, to 2.51 percent at 4:45 p.m. London time. The 3.75 percent security due September 2021 rose 0.46, or 4.6 pounds per 1,000-pound face amount, to 110.80. Thirty-year yields were nine basis points lower at 3.41 percent.

The cover ratio for today’s asset purchases compares with 1.39 at the equivalent operation on Oct. 18. The purchases are part of an extension to the BOE’s so-called quantitative easing, announced on Oct. 6.

Governor Mervyn King today defended the program saying policy makers decided to raise the target because there were “real risks” of inflation falling below the central bank’s 2 percent goal.

‘Real Risks’

“When we undertook the next round of asset purchases, we did it because we thought there were real risks ahead of inflation falling below the target and we wanted to offset that,” he told a parliamentary hearing in London.

The Debt Management Office canceled a planned gilt mini- tender scheduled for the week commencing Nov. 28 due to the larger-than-anticipated size of today’s sale of index-linked securities, it said.

There was “incredibly strong demand” at today’s gilt sale, said Sam Hill, a fixed-income strategist at RBC Capital Markets in London.

U.K. government debt has returned 11 percent this year, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies, surpassing the 6.4 percent return for German bunds and 7.7 percent gain for U.S. Treasuries.

Sterling weakened 0.1 percent to $1.5983, after earlier climbing to $1.6039, the highest level since Sept. 8. It dropped 0.4 percent to 121.28 yen and traded little changed at 86.97 pence per euro.

The pound has slid 0.7 percent in the past six months, according to Bloomberg Correlation-Weighted Indexes, which measure a basket of 10 developed-market currencies.

--With assistance from Ben Martin in London. Editors: Matthew Brown, Nicholas Reynolds

To contact the reporters on this story: Keith Jenkins in London at kjenkins3@bloomberg.net; Lucy Meakin in London at lmeakin1@bloomberg.net

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


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