Bloomberg News

Pound Rises to 15-Month High Versus Euro on Debt Crisis Concern

January 04, 2012

Jan. 4 (Bloomberg) -- The pound rose to the highest in 15 months against the euro as the cost of insuring Spanish bonds against default climbed on concern the region’s debt crisis is worsening.

Sterling advanced for the first time in three days against the single European currency. Credit-default swaps on Spain jumped 20 basis points to 425 as El Pais reported the government had to help the Valencia region make a 123 million-euro ($160 million) payment to Deutsche Bank AG. Ten-year gilts snapped a three-day decline as Europe’s economic turmoil underpinned demand for the safest assets

“The debt crisis is still a key issue that undermined the euro,” said Lee Hardman, a currency strategist at Bank of Tokyo-Mitsubishi UFJ Ltd. in London. “It’s the euro weakness rather than sterling strength.”

The pound climbed 0.9 percent to 82.65 pence per euro, the the strongest since Sept. 13, 2010, before trading at 82.79 pence at 4:07 p.m. London time. Sterling fell 0.3 percent to $1.5602 and 119.71 yen.

The 10-year gilt yield was little changed at 2.03 percent, after reaching 2.08 percent, the highest since Dec. 22. The 3.75 percent bond due September 2021 rose 0.01, or 10 pence per 1,000-pound face amount, to 115.02.

Two-year yields climbed three basis points, to 0.39 percent, after falling to an all-time low 0.271 percent on Dec. 30. It rose to 0.41 percent earlier.

Sterling has risen 3.2 percent against a basket of nine developed-market peers in the past six months, making it the third-best performer after the Japanese yen and the U.S. dollar, according to Bloomberg Correlation-Weighted Indexes.

Spanish Bonds

The yield on Spain’s 10-year bonds rose 14 basis points, sending the difference in yield with bunds 12 basis points wider. Spanish Prime Minister Mariano Rajoy’s government may apply for loans from the European Union’s rescue fund and the International Monetary Fund to help restructure the country’s financial industry, Expansion reported, citing unidentified people with knowledge of the matter.

Spain has no plans to seek external help to fund its overhaul of the industry, said Carmen Martinez Castro, the deputy minister for communication.

Sterling stayed higher and 10-year gilts pared declines after the Debt Management Office sold five-year notes at a lower yield than in the previous sale in December.

The debt agency sold 3.75 billion pounds of gilts maturing in 2017 at an average yield of 1.102 percent compared with 1.125 percent in December. The auction attracted bids for 2.02 times the amount of securities on offer.

The pound also gained against the euro and the Swiss franc as Bank of England data showed foreign investors boosted their gilt holdings by 16.3 billion pounds in November, the biggest monthly rise since September 2008. That’s an increase from the net purchase of 12.5 billion pounds in October.

--Editors: Mark McCord, Nicholas Reynolds

To contact the reporter on this story: Anchalee Worrachate in London at aworrachate@bloomberg.net;

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


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