Bloomberg News

U.K. 10-Year Gilts Drop as Stocks Rise, Damping Safety Demand

December 16, 2011

Dec. 16 (Bloomberg) -- U.K. 10-year gilts fell, paring a weekly gain that pushed yields to a record low, as rising European stocks reduced demand for the securities as a haven.

The pound was little changed against the euro, headed for its biggest increase in six weeks. The Stoxx Europe 600 Index added 0.3 percent, while the U.K.’s FTSE 100 advanced 0.6 percent. Gilts fell with Treasuries before reports that economists said will show U.S. consumer prices increased in November. Italy’s lower house of parliament is due to vote on a 30 billion-euro ($39 billion) budget plan today.

“Stocks are up, yields are down in Spain and Italy, and so there is a little bit of an improvement in sentiment,” said Brian Barry, an analyst at Evolution Securities Ltd. in London. “People have seen things in a more positive light and so it’s not that surprising to see yields rise slightly.”

Ten-year gilt yields increased two basis points, or 0.02 percentage point, to 2.12 percent at 10:38 a.m. London time after falling to 2.06 percent yesterday, the least since Bloomberg began compiling the data in 1992. The 3.75 percent bond due September 2021 dropped 0.155, or 1.55 pounds per 1,000- pound ($1,552) face amount, to 114.270. Two-year yields were little changed at 0.38 percent.

The pound gained 0.2 percent to $1.5545 and was at 83.85 pence per euro, up 1.9 percent this week.

Pound Gains

Sterling has risen 3 percent in the past three months, according to Bloomberg Correlation-Weighted Indexes, which track 10 developed-nation currencies. The dollar rose 5.5 percent and the yen climbed 2.1 percent.

Gilts have returned 16 percent this year, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies. Investors bought the securities as an alternative to assets denominated in the euro as European Union leaders struggled to solve a debt crisis that has forced Greece, Ireland and Portugal to seek bailouts. German bunds gained 9 percent and Italian bonds lost 7 percent.

U.K. government bonds climbed this year, pushing 10- and two-year yields to record lows, as the economy slowed, and the Bank of England increased its bond-purchase target by 75 billion pounds to 275 billion pounds.

U.K. retail sales dropped more than economists predicted in November and an index of factory orders fell to the lowest in more than a year this month, reports showed yesterday.

--Editors: Mark McCord, Matthew Brown

To contact the reporters on this story: Lukanyo Mnyanda in Edinburgh at lmnyanda@bloomberg.net; David Goodman in London at dgoodman28@bloomberg.net

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


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