U.K. Gilts Fall as Stocks Rise Amid G-20 Summit; ECB Cuts Rate

U.K. government bonds fell and stocks rose as Group of 20 leaders meet to discuss the euro area’s debt crisis amid speculation Greece will withdraw a plan for a referendum on the nation’s rescue package.

Gilts stayed lower as the European Central Bank unexpectedly cut interest rates, helping stocks in the region extend their rally. The FTSE 100 Index jumped 1.5 percent, after declining an equal percentage. Longer-dated securities fell as the U.K. sold 2 billion pounds ($3.2 billion) of 2032 securities today.

“The last few days have been primarily about what’s going on in Greece, or what may be going on,” said John Wraith, a fixed-income strategist at Bank of America Merrill Lynch Global Research in London. “The outcome of the whole euro-zone problem is still highly questionable, whether you get a referendum or not. We are still in dangerous territory.”

Ten-year gilt yields rose eight basis points, or 0.08 percentage point, to 2.37 percent at 2:31 p.m. London time. The yield fell this week to 2.17 percent, the lowest since Bloomberg started collecting the data in 1989. The 3.75 percent bond due September 2021 dropped 0.765, or 7.65 pounds per 1,000-pound face amount, to 112.055.

The two-year rate was little changed at 0.54 percent. Yields on Britain’s 4.25 percent bond due December 2040 rose eight basis points to 3.37 percent.

ECB Meeting

The pound was 0.4 percent stronger at $1.6008 and appreciated 0.3 percent to 85.92 pence per euro.

ECB officials, meeting for the first time under the presidency of Mario Draghi, lowered the benchmark interest rate by 25 basis points to 1.25 percent, as predicted by just four of 55 economists in a Bloomberg News survey.

Gilts fell even as the National Institute for Economic and Social Research cut its growth forecast and said there’s a 50 percent chance of a recession. A services index developed by Markit Economics and the Chartered Institute of Purchasing and Supply fell more than economists forecast in October.

Britain faces “significant downside risks,” Niesr said in a report published in London today as it cut its forecast for 2012 by more than half. It sees growth of 0.9 percent this year and 0.8 percent next year, down from 1.3 percent and 2 percent respectively in August.

Sterling has gained 2.1 percent in the past three months according to Bloomberg Correlation-Weighted Indexes, which track the currencies of 10 developed nations. The dollar rose 5.9 percent. U.K. government bonds have returned 13 percent this year, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies. German bunds rose 8.1 percent and Greek bonds plunged by 47 percent.

Ten-year gilts surged relative to their Italian counterparts in the past week, pushing the yield difference, or spread, between the two securities to 376 basis points, from 325 basis points on Oct. 27. The spread has expanded even as the ECB was said to be buying Italian bonds.

To contact the reporters on this story: Lukanyo Mnyanda in Edinburgh at lmnyanda@bloomberg.net

To contact the editor responsible for this story: Daniel Tilles at dtilles@bloomberg.net

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