BLBG:Gilts Rise as Stock Declines Spur Safety Demand; Pound Weakens
U.K. government bonds rose for the first time in three days as a decline in European stocks boosted demand for the safest assets.
Thirty-year gilts led gains after demand increased when the Debt Management Office sold 2.5 billion pounds ($3.8 billion) of debt maturing in January 2044 today. Benchmark 10-year (GUKG10) yields dropped from a two-month high set yesterday when the Bank of England upgraded its estimate of the U.K. economy and Governor Mervyn King said a recovery was in sight. The pound approached a six-week low against the dollar.
“As much as asset allocations may be greater to equities than bonds at the moment, there is a limit given the economic news we’re getting,” said Marc Ostwald, a rates strategist at Monument Securities Ltd. in London. “On a relative basis, gilts look roughly fairly valued. It depends how the economic data evolves over the next few months.”
The 30-year gilt yield dropped three basis points, or 0.03 percentage point, to 3.19 percent at 11:15 a.m. London time after climbing to 3.23 percent yesterday, the highest since March 20. The 4.5 percent bond due in December 2042 rose 0.565, or 5.65 pounds per 1,000-pound face amount, to 124.87. The 10-year yield declined two basis points to 1.91 percent.
The Stoxx Europe 600 Index of equities fell 0.2 percent and futures on the Standard & Poor’s 500 Index expiring in June declined 0.1 percent.
Demand Rises
The U.K. sold 3.25 percent gilts maturing in January 2044 at an average yield of 3.293 percent, compared with 3.12 percent at a previous auction on April 18. Demand increased to 2 times the amount on offer from 1.69 times last month.
U.K. gilts have returned 2.4 percent in the past 12 months through yesterday, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies. German bonds rose 1.8 percent and Treasuries gained 0.8 percent.
The pound fell 0.1 percent to $1.5216 after depreciating to $1.5174 yesterday, the weakest level since April 4. Sterling was little changed at 84.56 pence per euro.
Sterling strengthened 2 percent in the past month, the third-best performer after the Canadian and U.S. dollars among 10 developed-market currencies tracked by Bloomberg Correlation-Weighted Indexes.
To contact the reporter on this story: Neal Armstrong in London at narmstrong8@bloomberg.net
To contact the editor responsible for this story: Paul Dobson at pdobson2@bloomberg.net
