Bloomberg News

Gilt Yields Fall to Records as Greece Concern Spurs Safety Bid

November 01, 2011

Nov. 1 (Bloomberg) -- U.K. gilts advanced, with two- and 10-year yields dropping to records, after Greek Prime Minister George Papandreou said he would hold a referendum and parliamentary confidence vote on Europe’s bailout plan.

Ten-year yields slid 42 basis points over the past two days, the biggest two-day decline since March 2009, on speculation the planned referendum risks pushing Greece into default if rejected by voters, spurring demand for safer assets. Gilts gained even after a U.K. report showed the economy grew faster than forecast. The pound strengthened to a four-week high against the 17-nation euro.

“It’s the Greek referendum that’s done it,” said Elisabeth Afseth, a strategist at Evolution Securities Ltd. in London. “Gilts do benefit from being outside the whole thing. We could see yields go even lower in the short term.”

The 10-year yield fell 25 basis points, or 0.25 percentage point, to 2.19 percent at 4:01 p.m. London time, after dropping to 2.17 percent, the lowest since Bloomberg started collecting data on the securities in 1992. The 3.75 percent bond due September 2021 rose 2.355, or 23.55 pounds per 1,000-pound ($1,593) face amount, to 113.790.

The two-year rate declined two basis points to 0.51 percent after falling to an all-time low 0.435 percent. Thirty-year yield also dropped to a record, slipping as much as 19 basis points to 3.20 percent.

Six senior members of Greece’s ruling party called on Papandreou to resign, state-run Athens News Agency reported today, without citing anyone. An opinion poll published Oct. 29 showed most Greeks believe the accord on a new bailout package and a debt writedown is negative.

Spreads Widen

Ten-year gilts surged relative to their Italian counterparts today, pushing the yield difference, or spread, between the two securities to 409 basis points, the widest since before the euro’s 1999 debut based on closing Bloomberg generic prices. The spread expanded even as the European Central Bank was said to be buying Italian bonds today.

U.K. government bonds have returned 12 percent this year, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies. German bunds rose 7.1 percent, and Treasuries rallied 8.5 percent.

The pound strengthened 0.5 percent to 85.73 pence per euro, after rising to 85.48, the strongest since Oct. 4. The currency fell 0.9 percent to $1.5942, and lost 0.7 percent to 124.87 yen.

Greece’s proposed referendum poses a threat to the euro region’s financial stability, Fitch Ratings said. A rejection “would increase the risk of a forced and disorderly sovereign default and -- whilst not Fitch’s central rating case -- potentially a Greek exit from the euro,” Fitch said in a statement today.

Pound Gains

Gilts gained even after the Office for National Statistics said gross domestic product grew 0.5 percent in the third quarter from the previous three months. Economists forecast 0.3 percent, according to a Bloomberg News survey.

The two-day slide in 10-year gilt yields was the most since they tumbled 58 basis points on March 5-6, 2009, when Bank of England Governor Mervyn King received permission to start printing money to buy assets to revive the economy.

--With assistance from Paul Dobson in London. Editors: Nicholas Reynolds, Mark McCord

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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