Bloomberg News

U.K. Gilts Advance as Japan Deficit Widens, Greece Asks for Time

August 22, 2012

U.K. gilts rose, pushing 10-year yields down by the most in almost two weeks, after a report showed Japan’s trade deficit widened more than analysts forecast, fueling concern the global recovery is stalling.

Two-year notes snapped two days of declines as Greek Prime Minister Antonis Samaras’s call for more time to carry out policy changes to deal with his nation’s debt crisis damped demand for higher-yielding assets. Bank of England policy maker Adam Posen said the U.K. economy had stagnated. U.S. and German government bonds rose, while technology stocks helped push equity markets lower after Dell Inc. (DELL:US) revenue projections missed analysts’ estimates.

“A combination of weak trade data from Japan and some poor data from Dell is feeding through to bonds this morning, so gilts and bunds are playing catch up with the move in Treasuries in the Asian sessions,” said Sam Hill, a gilt strategist at Royal Bank of Canada in London.

Yields on 10-year gilts declined eight basis points, or 0.08 percentage point, to 1.63 percent at 4:22 p.m. London time, after sliding nine basis points, the biggest drop since Aug. 10. The 4 percent bond maturing March 2022 rose 0.79, or 7.90 pounds per 1,000-pound ($1,580) face amount, to 120.89. Two-year yields were three basis points lower at 0.17 percent.

U.K. government bonds have gained 2.3 percent this year, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies. Greek bonds slumped 16 percent while German bonds, perceived to be among the safest debt securities in the euro area, made 2.6 percent.

Gilts stayed higher after Luxembourg Prime Minister Jean- Claude Juncker, who meets Samaras in Athens today, said a decision on providing more Greek aid won’t be reached before October.

‘Poor Growth’

The U.K. is “in a state of poor growth, stagnation,” Posen, who leaves his position as an external member of the Monetary Policy Committee on Aug. 31, said in an interview broadcast on BBC’s “Hardtalk” program today.

“Myself and other external members of the committee have suggested we should be buying things other than just gilts,” he said. “That was the key way in which we didn’t live up to what we could have done.”

Gilts have gained this year as the economy slipped into a recession and Europe’s leaders failed to resolve the region’s debt crisis, fueling demand for the British securities as a haven. U.K. gross domestic product has contracted in the past three quarters, according to government data. Bank of England officials kept the target of their quantitative-easing program on hold on Aug. 2 after increasing it in July by 50 billion pounds to 375 billion pounds.

Sterling was little changed at $1.5796 and was 0.2 percent stronger at 78.89 pence per euro.

Britain’s currency has lost 0.7 percent in the past month, according to Bloomberg Correlation-Weighted Indexes, which track 10 developed-nation currencies. The dollar fell 1.9 percent and the euro gained 0.8 percent.

To contact the reporters on this story: Lukanyo Mnyanda in Edinburgh at lmnyanda@bloomberg.net; Eleanor Lawrie in London at elawrie@bloomberg.net

To contact the editor responsible for this story: Paul Dobson at pdobson2@bloomberg.net


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