Bloomberg News

Gilts Rise as Stocks Drop on Chinese GDP; Pound Weakens

April 13, 2012

U.K. gilts rose for the first time in three days after a Chinese report showed the world’s second- biggest economy expanded less than analysts forecast, boosting demand for safer assets.

Ten-year bonds completed a fourth week of gains after data showed Spanish banks’ borrowings from the European Central Bank jumped by almost 50 percent in March, fueling speculation the regional debt crisis is worsening. The pound weakened against the dollar and the yen.

“China’s GDP was lower than expected and there are further signs of the fragility of the banking sector in Spain,” said Nick Stamenkovic, a fixed-income strategist in Edinburgh at RIA Capital Markets Ltd., a broker for banks. “Core government bonds have rallied and gilts have moved in tandem.”

The yield on the benchmark 10-year gilt fell five basis points, or 0.05 percentage point, to 2.04 percent at 4:24 p.m. London time. The 4 percent bond due in March 2022 gained 0.465, or 4.65 pounds per 1,000-pound ($1,594) face amount, to 117.51. The yield has dropped 12 basis points this week, and 41 basis points since March 16.

China said its gross domestic product increased 8.1 percent in the first quarter, the smallest gain since the middle of 2009 and less than the 8.4 percent growth predicted in a Bloomberg News survey of economists.

Average net borrowings by Spanish banks climbed to 227.6 billion euros ($298.8 billion) last month from 152.4 billion euros in February, the Bank of Spain said. Lenders in the whole euro system took 361.7 billion euros, the data showed. Spain’s 10-year bond yield jumped 16 basis points to 5.98 percent.

Monthly Return

Gilts have returned 1 percent this month, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies. German bunds rose 0.5 percent while Spanish bonds dropped 2.5 percent, the gauges show.

U.K. bonds stayed higher even after a government report showed producer prices rose more than economists forecast in March, suggesting inflation pressures remain in the economy.

The price of goods at factory gates increased 0.6 percent from February, the Office for National Statistics said in London. Economists surveyed by Bloomberg News forecast a gain of 0.5 percent.

The pound fell 0.7 percent to $1.5853, and declined 0.6 percent to 128.31 yen. Sterling advanced 0.2 percent to 82.46 pence per euro.

The U.K. Debt Management Office said today it hired Deutsche Bank AG, Nomura International Plc, Royal Bank of Scotland Group Plc and Banco Santander SA (SAN) to manage the sale of a 3.75 percent bond due in 2052. The auction is scheduled to take place in the week commencing April 23. Demand declined at an auction of 20-year gilts yesterday.

To contact the reporter on this story: Lukanyo Mnyanda in Edinburgh at

To contact the editor responsible for this story: Daniel Tilles at

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