Gilt Yields Fall to Record Lows on Central Bank Minutes, Stock Declines

Gilts advanced, pushing 10- and 30- year yields to record lows, as minutes of the Bank of England’s most recent meeting showed some policy makers said an increase in stimulus may be needed.

U.K. government securities gained for a third day as stocks fell around the world on speculation the European debt crisis is worsening. The pound strengthened versus most of its major counterparts as investors sought safety. The minutes showed the nine-member Monetary Policy Committee, led by Governor Mervyn King, voted unanimously to keep its key interest rate at a record low 0.5 percent and hold its target for quantitative easing at 275 billion pounds ($427 billion).

“The tone was very dovish,” said John Hydeskov, chief analyst at Danske Bank A/S in London. “It’s natural for the BOE to apply more stimulus. We expect the Bank of England to increase its asset-purchase target by 50 billion pounds in January 2012.”

The 10-year gilt yield dropped four basis points, or 0.04 percentage point, to 2.14 percent at 4:54 p.m. London time, after declining to 2.104 percent, the least since Bloomberg began collecting data on the securities in 1992. The 3.75 percent bond due in September 2021 rose 0.460, or 4.60 pounds per 1,000-pound face amount, to 114.290.

The 30-year yield fell six basis points to 3.07 percent, after dropping to an all-time low 3.055 percent.

Euro-Area Threat

“The balance of risks to inflation” in the central bank’s new forecasts “meant that a further expansion of the asset- purchase program might well become warranted in due course,” according to the minutes released today in London.

The Bank of England cut its growth and inflation forecasts last week and said today the threat from the euro-area debt crisis had increased. Officials predicted inflation may slow below their 2 percent target in two years, signaling they may need to increase the stimulus plan.

Index-linked gilts advanced, pushing the yield on the 0.75 percent security due in March 2034 down eight basis points to minus 0.02 percent. That’s the first time the yields on all U.K. index-linked gilts have been below zero, according to data compiled by Bloomberg.

Gilts have returned 15 percent this year, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies. German debt gained 8.2 percent and U.S. Treasuries rose 9.6 percent, the indexes show.

The FTSE 100 index (UKX) of shares fell for an eighth day, losing 1.3 percent.

Pound Gains

The pound strengthened the most against the Brazilian real and South African rand.

Sterling appreciated 0.4 percent to 86.01 pence per euro, halting a three-day decline. It fell 0.7 percent to $1.5521 after dropping to $1.5498, the lowest since Oct. 10.

“In isolation, more QE should weaken sterling but other factors, such as general risk sentiment, can dominate,” Danske Bank’s Hydeskov said.

The pound has appreciated 1.3 percent in the past month, the third-best performer after the dollar and yen among 10 developed-market peers measured by Bloomberg Correlation- Weighted Indexes.

To contact the reporter on this story: Keith Jenkins in London at Kjenkins3@bloomberg.net

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

Press spacebar to pause and continue. Press esc to stop.

Bloomberg reserves the right to remove comments but is under no obligation to do so, or to explain individual moderation decisions.

Please enable JavaScript to view the comments powered by Disqus.