Bloomberg News

U.K. Gilts Decline, Snap Three-Day Advance as EU Agrees Measures

December 09, 2011

Dec. 9 (Bloomberg) -- U.K. government bonds declined, snapping a three-day advance, as investors weighed new measures agreed by European leaders meeting in Brussels as they attempt to soothe turmoil in the euro-area debt markets.

Two-year notes declined and German bunds dropped after EU leaders meeting in Brussels added 200 billion euros ($267 billion) to their crisis-fighting war chest and tightened anti- deficit rules. The U.K. will remain outside of the budget agreement after Prime Minister David Cameron said he would not sacrifice sovereignty to save the euro. The U.K. goods-trade deficit narrowed by a record in October as exports soared, boosted by demand from outside the European Union.

“Gilts are moving down with Europe,” said Anthony O’Brien, a fixed-income strategist at Morgan Stanley in London. Investors are awaiting “any announcements out of the EU summit. I don’t think they’re going to be pulling any new rabbits out of the hat.”

The 10-year gilt yield rose four basis points, or 0.04 percentage point, to 2.16 percent at 11:11 a.m. London time. The 3.75 percent security due September 2021 fell 0.40, or 4 pounds per 1,000-pound ($1,562) face amount, to 113.885. The benchmark yield headed for a 13 basis-point slide in the week.

Two-year note yields climbed three basis points to 0.38 percent today, after dropping to a record 0.317 percent yesterday.

Gilts Outperform

Germany’s benchmark 10-year bund yield climbed five basis points to 2.07 percent.

Gilts have earned 15 percent this year, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies, out-pacing an 8.2 percent gain in German government debt and 9.5 percent return for U.S. Treasuries.

Bank of England policy makers yesterday left the benchmark interest rate at a record low 0.5 percent and their asset-buying target at 275 billion pounds. The central bank extended its bond-purchase program in October to help bolster the flagging U.K. economy.

Chancellor of the Exchequer George Osborne said Nov. 29 that U.K. economic growth will be slower than forecast this year and next, forcing the government to borrow more.

The U.K. is scheduled to auction as much as 3.5 billion pounds of 28-, 91- and 182-day bills today, while the Debt Management Office will publish its issuance schedule for the January-March period.

Gilt Market ‘Focus’

“It’s unlikely even an increase in the debt remit will be sufficient to offset the size of the bank’s buying, so again I think the market will realize the gilt market will be very well supported by the debt purchases,” said Adam McCormack, head of gilt sales at Barclays Plc in London.

The pound rose 0.5 percent to $1.5699 and weakened 0.2 percent to 85.49 pence per euro.

Sterling has weakened 3.8 percent in the past 12 months, making it the second-worst performer among the 10 developed- nation currencies tracked by Bloomberg Correlation-Weighted Indexes after the Canadian dollar.

--Editors: Matthew Brown, Nicholas Reynolds

To contact the reporter on this story: 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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