Bloomberg News

Gilt Yields Fall Toward Record as Italy Sells Debt; Pound Slides

December 29, 2011

Dec. 28 (Bloomberg) -- U.K. 10-year bond yields fell to within half a basis points of a record low as investors sought the safest assets as the Italian government started two days of debt sales.

The benchmark U.K. yield has dropped 139 basis points this year as euro-area officials struggled to contain a debt crisis. Gilts also gained after the Chartered Institute of Personnel and Development said Britain faces the “toughest” job market in two decades. The pound weakened against all its 16 major counterparts.

“There’s more supply in Italy tomorrow and that will probably be the main focus” for the gilt market, said Sam Hill, a fixed-income strategist at RBC Capital Markets in London.

The 10-year yield fell four basis points to 2.01 percent at 4:39 p.m. London time, the least since it dropped to the record low 1.996 percent on Dec. 23. The 3.75 percent bond due September 2021 rose 0.335, or 3.35 pounds per 1,000-pound ($1,548) face amount, to 115.30.

The two-year yield dropped three basis points to 0.31 percent, after falling to an all-time low 0.292 on Dec. 23.

Italy’s Treasury sold 179-day bills at a yield of 3.251 percent down from a 14-year-high of 6.504 percent at the previous auction of the securities on Nov. 25. The nation also sold 1.7 billion euros of zero-coupon notes maturing in 2013 at 4.853 percent. The country will auction as much as 8.5 billion euros of debt due between 2014 and 2022 tomorrow.

“The more natural direction for gilt yields at this level might be next week for them to be biased upwards in the short term,” RBC’s Hill said.

Jobless Numbers

The number of people out of work will reach 2.85 million by the end of 2012, with the unemployment rate rising to 8.8 percent, the CIPD, an association for human-resource professionals, said today.

The pound slid for the first time in three days against the dollar, losing 1.3 percent to $1.5463. Sterling weakened 0.2 percent to 83.56 pence per euro.

We’re seeing a “big flow in pound-dollar in very thin markets,” said Sebastien Galy, a senior foreign-exchange strategist at Societe Generale SA in London.

The pound has appreciated 2.7 percent in the past six months, the third-best performer out of 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The dollar gained 7.1 percent and the yen rose 10 percent.

--With assistance from Anchalee Worrachate in London. Editors: Mark McCord, 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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