Bloomberg News

Gilts Extend Second Weekly Gain as Consumer Confidence Declines

March 30, 2012

U.K. gilts gained for a second week after an industry report showed consumer confidence unexpectedly worsened this month, boosting the appeal of fixed-income assets.

Ten-year bonds pared their first quarterly loss in a year as the data added to concern the economic recovery is stalling. U.K. government securities stayed higher after a report showed inflation in the euro area slowed. The pound strengthened to a four-month high against the dollar and was little changed versus the euro as European finance ministers started a two-day meeting in Copenhagen to discuss boosting the region’s bailout funds.

“Until we see signs of life in the economy and an improvement in risk appetite, gilts will remain supported,” said Nick Stamenkovic, a fixed-income strategist at RIA Capital Markets Ltd. in Edinburgh. “Activity is pretty stagnant.”

The yield on the 10-year gilt was 2.20 percent at 4:48 p.m. London time, trimming this year’s increase to 17 basis points. The 4 percent bond due March 2022 was at 115.97.

An index of U.K. consumer sentiment dropped to minus 31 from minus 29 in February, GfK NOP Ltd. said. The median estimate in a Bloomberg News survey of economists was for no change. Inflation (ECCPEMUY) in the euro region slowed to 2.6 percent in March from 2.7 percent the prior month, the European Union’s statistics office in Luxembourg said in an initial estimate.

Weekly Gain

U.K. government bonds rose this week as reports showed house prices dropped in March and the economy contracted more than initially estimated in the fourth quarter, fueling speculation the central bank will consider more asset purchases.

The Organization for Economic Cooperation and Development yesterday predicted the U.K. economy will contract 0.4 percent in the first quarter, before growing by 5 percent in the following three months.

Policy makers haven’t made a decision on whether more so- called quantitative easing will be needed, Bank of England Governor Mervyn King said on March 27. The Monetary Policy Committee raised the plan’s ceiling by 50 billion pounds ($79.9 billion) in February to 325 billion pounds and will complete the additional purchases by May.

Gilts have handed investors a 4.4 percent return in the past six months, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies. The securities have been boosted as investors sought a haven from the European debt crisis.

The pound climbed 0.2 percent to $1.5982 after rising to $1.6036, the strongest since Nov. 14. That’s above its 200-day moving average of $1.5851. The U.K. currency traded little changed at 83.40 pence per euro.

Sterling has strengthened 0.5 percent this year, according to Bloomberg Correlation-Weighted Indexes, which track 10 developed-nation currencies. The euro appreciated 0.4 percent, and the dollar declined 2.7 percent.

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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