BLBG: Pound Advances Against Euro After Warning on German Bank Debt
The pound rose against the euro amid speculation Britain’s financial institutions may weather the financial turmoil better than their counterparts in the single- currency region.
The U.K. currency snapped three days of losses after Britain’s Daily Telegraph cited Jochen Sanio, president of the banking regulator, BaFin, as saying debt levels at German banks will blow up “like a grenade” unless they participate in a government plan to strengthen the financial system. The euro stayed lower versus the pound after a report showed industrial orders in the 16-nation economy fell in March for an eighth month.
“The amount of bad news that’s priced into the pound quite considerably exceeds that priced into the euro,” said Michael Klawitter, a currency strategist in Frankfurt at Dresdner Kleinwort. “Sterling is being buoyed on concern there will be further bad news about German banks.”
The pound strengthened 0.4 percent to 87.78 pence per euro by 4:20 p.m. in London. Against the dollar, it rose for a sixth time in seven days, gaining 0.1 percent to $1.5922.
Industrial orders in the euro region fell an annual 26.9 percent, after a revised 34.2 percent drop in February, the European Union’s statistics office in Luxembourg said today. Economists forecast a 30.6 percent annual decline, according to the median of eight estimates in a Bloomberg survey. From the prior month, orders slipped 0.8 percent.
Gilts advanced after the Bank of England paid above market prices for 3.44 billion pounds of 10- to 25-year gilts today. The central bank paid an average of 140.519 for 1.54 billion pounds of the 8 percent gilt due in July 2021, which was trading at about 140 before the auction.
Bond Buybacks
“Average and highest accepted prices were again all comfortably above market” mid-price at the offering deadline, said John Wraith, head of sterling interest-rate strategy in London at RBC Capital Markets.
The gains drove the yield on the two-year note six basis points lower to 0.98 percent. The 4.25 percent security due March 2011 climbed 0.10, or 1 pound per 1,000-pound ($1,579) face amount, to 105.76. Bond yields move inversely to prices.
The Treasury plans to auction a record 220 billion pounds of gilts this fiscal year, 50 percent more than last year, to help drag the economy out of the recession. The U.K. is scheduled to sell 1.25 billion pounds of inflation-linked bonds due 2032 on May 28.
Chancellor of the Exchequer Alistair Darling said April 22 the budget deficit this year will reach 175 billion pounds, or 12.4 percent of gross domestic product, the highest proportion among the Group of 20 nations.
