Bloomberg News

Gilts Gain Most in Four Months on Signs Global Recovery Stalling

March 24, 2012

U.K. 10-year gilts rose this week, with 10-year yields falling the most in four months, as signs the global recovery is stalling fueled demand for safer assets.

Benchmark bonds snapped three weeks of losses as purchasing managers indexes showed manufacturing in Europe and China worsened last month, and U.K. retail sales declined in February. Gilts also rallied as the Debt Management Office said it would issue fewer securities next fiscal year and Chancellor of the Exchequer George Osborne maintained the government’s austerity drive in the annual budget.

“The move in yields was driven more by external factors, the PMI data in some of the countries in the euro zone was particularly poor and gilts responded,” said Sam Hill, a fixed- income strategist at Royal Bank of Canada’s RBC Capital Markets unit in London. “The consensus was surprised by the gilt remit and that was supportive of gilts as well.”

The yield on the 10-year gilt fell 17 basis points, 0.17 percentage point, this week to 2.27 percent at 5 p.m. London time yesterday, the biggest decline since the five days through Nov. 4. The 4 percent bond due March 2022 gained 1.605, or 16.05 pounds per 1,000-pound face amount, to 115.285.

U.K. securities have returned 2.2 percent in the past six months, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies. They earned 17 percent last year, the most among 26 sovereign-debt indexes, as investors sought a refuge from the euro-region’s debt crisis and on signs the U.K. economic recovery was stalling.

House Prices

Nationwide Building Society will say next week that house price gains slowed in March while a government report will confirm the economy contracted in the fourth quarter, according to economists surveyed by Bloomberg.

The pound gained 0.2 percent this week to $1.5868, and weakened 0.6 percent to 83.61 pence per euro.

Sterling has dropped 1.7 percent in the past year according to Bloomberg Correlation-Weighted Indexes, which track 10 developed-nation currencies. The dollar rose 1.4 percent and the euro slid 4.8 percent.

An index of U.K. consumer sentiment dropped to 44 last month from 47 in January, Nationwide Building Society said in an e-mailed report yesterday. The country’s lenders granted 13 percent fewer loans for home purchases last month compared with January, the British Bankers’ Association said in London.

A gauge of China’s leading indicators rose 0.8 percent in February, after gaining 1.5 percent in January, the Conference Board said in Beijing yesterday.

To contact the reporter on this story: Lukanyo Mnyanda in Edinburgh at lmnyanda@bloomberg.net

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


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