BLBG:Gilt Yields Fall to Two-Week Low on Euro Crisis; Pound Rises
U.K. government bonds advanced, pushing down 10-year yields the most in more than a month, as concern euro-area leaders are moving too slowly to end the debt crisis boosted demand for the relative safety of British assets.
Thirty-year gilts gained for a second day after demonstrations turned violent yesterday in Madrid and Catalan President Artur Mas called for the Spanish region to seek self- determination, damping the allure of euro-area debt. The pound rose against the euro after the Confederation of British Industry’s gauge of annual sales growth increased for the first time in three months. The 30-year break-even rate fell to a three-year low on concern a recalculation of the retail-price index will impact inflation-linked securities.
“The situation in Spain helps to underpin demand for gilts,” said Mohit Kumar, head of European fixed-income strategy at Deutsche Bank AG in London. “Gilts are expensive at these levels, but an argument against going short at this point is the uncertainty about Spain.” A short position is a bet an asset will decline.
The 10-year gilt yield fell nine basis points, or 0.09 percentage point, to 1.73 percent at 1:15 p.m. London time, the steepest decline since Aug. 22. The 1.75 percent bond due in September 2022 gained 0.81, or 8.10 pounds per 1,000-pound ($1,629) face amount, to 100.185.
U.K. government bonds stayed higher after the London-based CBI said its gauge of annual sales growth climbed to 6 from minus 3 in August.
Pound Gains
Gilts returned 0.4 percent this quarter through yesterday, according to Bank of America Merrill Lynch indexes. German bonds gained 0.5 percent during the same period.
U.K. debt was the most volatile among developed-market government bonds after Irish securities today, according to measures of 10-year bonds, the spread between two- and 10-year securities and credit default swaps.
The pound strengthened 0.3 percent to 79.45 pence per euro. It fell 0.2 percent to $1.6164, after touching $1.6150, the lowest level since Sept. 14.
Sterling has strengthened 2.1 percent this year, according to Bloomberg Correlation-Weighted Indexes, which track 10 developed-market currencies. The euro tumbled 3.2 percent and the dollar weakened 2.4 percent.
Break-Even Rate
The 30-year break-even rate, the difference in yield between nominal and index-linked bonds, fell for a third day, sliding as much as four basis points to 2.77 percentage points, the least since March 2009.
A U.K. government consultation on potential changes to the formula used to calculate Britain’s retail-price index has led to market concern about the impact on inflation-linked gilts, the Debt Management Office chief said today.
U.K. index-linked bond sales are “very high” and the debt manager is committed to the issuance program, Robert Stheeman, chief executive officer of the U.K.’s debt agency, said in a speech at the Euromoney Sterling Conference in London today.
Recommendations on changes to the index will probably be published in January, he said.
To contact the reporter on this story: Lucy Meakin in London at lmeakin1@bloomberg.net
To contact the editor responsible for this story: Paul Dobson at pdobson2@bloomberg.net
