Bloomberg News

U.K. Gilts Advance for Sixth Day After S&P Downgrades Greece; Pound Gains

February 28, 2012

U.K. 10-year (GUKG10) gilts rose for a sixth day after Standard & Poor’s cut Greece’s credit rating to selective default, supporting demand for the perceived safety of British debt.

Benchmark gilt yields fell to the lowest in three weeks after a U.S. report showed durable goods orders dropped in January, fueling speculation the world’s biggest economy is slowing. The pound rose toward a three-week high against the dollar after an index of U.K. retail sales climbed in February.

“The S&P decision is a reminder that all is far from well in Greece and the euro zone, which is supportive for gilts,” said John Wraith, a fixed-income strategist at Bank of America Merrill Lynch in London. “This is not an environment where we see a material selloff in gilts since highly rated government bonds are still in high demand.”

The yield on the 10-year gilt fell three basis points, or 0.03 percentage point, to 2 percent at 4:20 p.m. London time. The 3.75 percent security due September 2021 rose 0.245, or 2.45 pounds per 1,000-pound ($1,588) face amount, to 115.065. The 30- year yield dropped two basis points to 3.18 percent.

S&P lowered Greece’s credit rating by two steps from CC yesterday after the country negotiated the biggest sovereign debt restructuring in history. The company took the step after the government added clauses to its debt designed to coerce investors unwilling to take part in the exchange, S&P said.

Durable Goods

Bookings for U.S. goods meant to last at least three years slumped 4 percent, more than forecast, after a revised 3.2 percent gain the prior month, the Commerce Department said in Washington. Economists projected a 1 percent decline, according to a Bloomberg News survey.

Gilts have returned 17.5 percent during the past year, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies. They have fallen 0.7 percent in 2012, the indexes show.

The pound gained versus the dollar after the Confederation of British Industry said its gauge of annual sales growth increased to minus 2, the highest in eight months, from minus 22 the previous month. That compared with a median estimate of minus 12 in a Bloomberg News survey of economists.

Sterling has strengthened 2.2 percent against the greenback this year as data signalled the U.K. economy is stabilizing. The budget deficit for the first 10 months of the fiscal year was less than economists forecast, a report showed Feb. 21. An index of U.K. factory orders rose to a six-month high in February, data two days later showed.

‘More Promising’

“After a contraction in the economy in the fourth quarter, the economy has started the year on a slightly more promising note,” Audrey Childe-Freeman, global head of currency strategy at JPMorgan Private Bank in London, said before the retail-sales report. “Coupled with a still upbeat near-term euro-dollar outlook this should add on to the bullish case” for the pound against the dollar, she said.

The pound rose 0.3 percent to $1.5876 after advancing to $1.5902 yesterday, the strongest level since Feb. 8. The U.K. currency was little changed at 84.70 pence per euro.

The pound may strengthen beyond $1.60 should it climb above its 200-day moving average of $1.5903 and this month’s high set Feb. 8, said Axel Rudolph, a senior technical analyst at Commerzbank AG in London.

A resistance area, which includes both levels, has “capped cable in the past couple of days,” he wrote today in a note to clients. “It should soon be breached, though, with the psychological $1.60 region then being in focus.”

Resistance refers to an area on a chart where analysts anticipate sell orders are clustered. A moving average is the average value of a security over a period of time.

To contact the reporter on this story: 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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