Bloomberg News

Gilts Decline for Fourth Week as EU Agreement Damps Safety Bid

June 30, 2012

U.K. 10-year gilts fell for a fourth week, the longest losing streak since July 2009, as optimism European Union measures will help to ease the region’s debt crisis damped demand for the safety of British government bonds.

Yields on the benchmark debt touched the most in five weeks after euro-area leaders meeting in Brussels over the previous two days agreed to ease repayment rules for emergency loans to Spanish banks. The pound climbed against the dollar even as data confirmed the U.K. economy is in its first double-dip recession since the 1970s, adding to pressure on the Bank of England to boost stimulus.

“Gilts have definitely been driven by the summit,” said Elisabeth Afseth, a fixed-income analyst at Investec Bank Plc in London. “Some of the safe-haven bid could fall away.”

The yield on the 10-year gilt rose one basis point, or 0.01 percentage point, in the week to 1.73 percent at 5 p.m. London time yesterday. The 4 percent bond due March 2022 lost 0.135, or 1.35 pounds per 1,000-pound face amount, to 120.115.

The pound posted a 0.6 percent gain to trade at $1.5680. While it weakened 0.1 percent to 80.69 pence per euro in the five days to yesterday, sterling advanced for a fourth quarter.

Bank of England policy makers meet at a two-day policy meeting starting July 4. The central bank will expand its asset- purchase program by 50 billion pounds to 375 billion pounds at the gathering, according to the median estimate of economists in a Bloomberg News survey.

Economic Outlook

Governor Mervyn King said June 26 that his vote for more stimulus at the most recent meeting reflected his worries about a deteriorating global economic outlook at a time when he’s pessimistic that Europe’s debt crisis can be resolved.

Reports confirmed gross domestic product shrank 0.3 percent in the first quarter, and that disposable incomes fell. Consumer confidence failed to improve in June, according to a GfK NOP Ltd. survey published yesterday.

U.K. government debt has handed investors a return of 2.9 percent this year to June 28, outperforming the 2.4 percent gain in German bunds, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies.

The Debt Management Office plans to auction 6.25 billion pounds of bonds due September 2017 and December 2030 next week. It will also offer 3.5 billion pounds of bills.

To contact the reporter on this story: Lucy Meakin in London at lmeakin1@bloomberg.net.

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


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