Bloomberg News

Gilts Advance as Investors Seek Safety Amid Euro Region Concern

November 18, 2011

Nov. 17 (Bloomberg) -- U.K. 10-year government bonds advanced, pushing the yield toward a record low, as investors sought the safest assets amid concern a failure to contain Europe’s debt crisis is weighing on growth.

The pound strengthened against the euro after Spain’s borrowing costs rose at an auction of 10-year debt. Data showed U.K. consumer confidence fell to a record low in October as Europe’s sovereign woes and the employment outlook worsened. Bank of England Governor Mervyn King said yesterday the U.K. economy faces a “markedly weaker” outlook amid persistent danger from turmoil in the euro area.

“While things could be better with the U.K. public finances as well, being outside the euro zone and having its own currency and monetary policy is quite clearly a positive at the moment,” said Elisabeth Afseth, a strategist at Evolution Securities Ltd. in London. “I don’t think there’s any reason why yields can’t go a bit lower. From a psychological point of view it might be tricky to go through 2 percent, but there’s no reason why it can’t.”

The 10-year gilt yield fell two basis points, or 0.02 percentage point, to 2.13 percent at 10:35 a.m. London time, after yesterday dropping to a record low of 2.107 percent. The 3.75 percent security due September 2021 rose 0.225, or 2.25 pounds per 1,000-pound ($1,573) face amount, to 114.245. Two- year note yields were little changed at 0.50 percent.

Consumer Sentiment

An index of consumer sentiment dropped 9 points from the previous month to 36, the lowest since it began in May 2004, the Nationwide Building Society said today. A gauge of consumers’ expectations fell 14 points to a record low of 48.

A separate report showed U.K. retail sales unexpectedly rose in October as shops offered discounts to lure buyers. Sales including fuel increased 0.6 percent from September, the most since June, compared to a 0.2 percent decline median estimate of 25 economists in a Bloomberg survey.

The pound traded 0.1 percent stronger at 85.48 pence per euro. It was little changed at $1.5736 and 121.18 yen.

The U.K. currency has appreciated 1.1 percent in the past month, making it the third-best performer, after the Canadian and U.S. dollars, among the 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes.

--Editors: Mark McCord, Matthew Brown

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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