UK Gilts Advance as Central Bank Buys Securities
June 29th, 2009Via: Bloomberg:
U.K. 10-year government bonds rose as the Bank of England bought 3.5 billion pounds ($5.8 billion) of securities as part of its asset-purchase plan to revive the economy.
The gains drove the yield on the gilt to its lowest level in six weeks after Britain’s biggest business lobby group said financial-services companies may cut 13,000 jobs in the third quarter, stoking demand for the safest assets. Gilts also rose as a report showed the economic slump led to the smallest increase in net mortgage lending since records began in 1993.
“The 10-year is leading as we’ve got a buyback,” said Jason Simpson, an interest-rate strategist in London at Royal Bank of Scotland Group Plc. “And if the Bank of England is looking at lending numbers as a clue to whether quantitative easing has been successful, it’s not going to get much joy. This underlines the need for more purchases.”
The yield on the 10-year gilt dropped seven basis points to 3.61 percent as of 4:36 p.m. in London. The 4.5 percent security due in March 2019 climbed 0.6, or 6 pounds per 1,000-pound face amount, to 107.19. The yield on the two-year note rose five basis points to 1.2 percent.
The Bank of England said it was offered 4.3 billion pounds of gilts maturing between 2020 and 2032 today, 1.22 times the amount it bought. It will purchase 3 billion pounds of securities due between 2015 and 2019 on July 1, bringing its spending since the quantitative-easing policy was introduced to 105.5 billion pounds.
Purchase Plan
The central bank, which announced the program March 4, plans to buy 125 billion pounds of securities, including corporate debt. It has permission from the Treasury to spend up to 150 billion pounds on asset purchases.
