Bloomberg News

Gilts Fall as Spanish Debt Sale, Stock Gains Damp Safety Demand

April 18, 2013

U.K. government bonds fell, with 10-year yields rising from the lowest level in a week, as a successful Spanish debt sale and a rally in European stocks reduced demand for safer assets.

Gilts trimmed this month’s gains as German lawmakers approved a rescue for Cyprus, fueling speculation the euro-area debt crisis is being contained. The pound strengthened against the dollar after falling earlier when a report showed U.K. retail sales declined in March. The U.K. Debt Management Office sold 2.25 billion pounds ($3.43 billion) of 30-year bonds.

“Gilts pulled back a bit as they seem to be driven more by other markets than local data,” said Robin Marshall, a director of fixed income at Smith & Williamson Investment Management in London. “Stocks are doing well today and headlines out of the euro zone are positive. That probably reduces demand for assets like gilts or German bunds.”

The 10-year gilt yield rose one basis point, or 0.01 percentage point, to 1.70 percent at 2:12 p.m. in London after falling to 1.68 percent, the lowest level since April 8. The 1.75 percent bond due in September 2022 dropped 0.115, or 1.15 pounds per 1,000-pound face amount, to 100.465. The yield has still declined seven basis points this month.

Spain’s Treasury sold 4.71 billion euros ($6.16 billion) of debt due between 2016 and 2023 today, beating its target of 4.5 billion euros. The 10-year bonds were sold at an average yield of 4.612 percent, the lowest since September 2010. The Stoxx Europe 600 Index of shares gained 0.3 percent.

German Support

Germany’s lower house backed the country’s participation in the 10 billion-euro bailout of Cyprus as Finance Minister Wolfgang Schaeuble said refusing aid risked triggering a default and contagion to other nations.

The pound appreciated 0.3 percent to $1.5287 after falling to $1.5217 yesterday, the weakest since April 5. Sterling rose 0.1 percent to 85.42 pence per euro.

The U.K. currency weakened earlier after the Office for National Statistics said retail sales including fuel fell 0.7 percent last month. Economists surveyed by Bloomberg News had forecast a decline of 0.6 percent.

The Debt Management Office auctioned the 3.25 percent gilts due in January 2044 at an average yield of 3.121 percent, compared with 3.42 percent when the government sold the securities through banks on Jan. 29. The yield on the securities gained one basis point from yesterday to 3.12 percent.

`Low Levels'

Gilts are likely to be supported as economic data adds to evidence the U.K. economy is deteriorating, Smith & Williamson’s Marshall said.

“There’s a case for the Bank of England to further loosen monetary policy given the weakness of the economy, and that should continue to keep gilt yields at low levels,” he said.

Gilts returned 1.6 percent this year through yesterday, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies. Treasuries and German bonds both gained 0.8 percent.

The pound has weakened 4 percent this year, the worst performer after the yen among the 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The dollar rose 2.8 percent and the euro climbed 1.7 percent.

To contact the reporter on this story: Anchalee Worrachate in London at aworrachate@bloomberg.net

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


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