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Gilts Underperform Bunds on Stock Gains, German Auction Demand

U.K. benchmark government bonds underperformed equivalent bunds as gains in European stocks and increased demand at a German note auction damped bids for the relative safety of British securities.

Long-dated gilts stayed lower even after demand improved at an auction of index-linked bonds. The yield difference between 10-year gilts and bunds widened as the Stoxx Europe 600 climbed 0.7 percent and the U.K.’s FTSE 100 (UKX) Index of stocks rose 0.6 percent. The European Central Bank said demand for three-month dollar loans jumped after it almost halved the cost of the funds in a concerted action with five other central banks.

Today’s move in gilt yields is “largely a reaction to the move in bunds after the ECB lending news and a strong German five-year note auction,” said Adam McCormack, head of gilt sales at Barclays Plc in London.

The auction of 900 million pounds ($1.4 billion) 1.25 percent inflation-protected gilts maturing in 2032 drew bids 2.03 times the amount of security on offer, compared with a bid- to-cover ratio of 1.97 times in the previous sale in January.

Germany sold 4.09 billion euros ($5.5 billion) of five-year notes today. The nation got bids for 8.67 billion euros, more than the maximum sales target of 5 billion euros. The notes were sold to yield 1.11 percent.

10-Year Gilt

The 10-year gilt yield fell two basis points, or 0.02 percentage point, to 3.23 percent at 10:25 a.m. London time, lagging a four-basis point drop in similar-maturity German bund yields. The U.K. 3.75 percent security maturing September 2021 rose 0.14, or 1.4 pounds per 1,000 pound face amount, to 113.215.

The U.K. two-year yield was little changed at 0.37 percent. It earlier dropped to 0.346 percent, the lowest since Bloomberg began tracking the data in 1992.

Gilts have returned 15 percent this year, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies, while European benchmark German debt rose 7.3 percent. U.S. Treasuries have gained 8.9 percent.

The pound was little changed against the dollar and 17- member euro after data showed U.K. manufacturing output fell more than economists forecast. It traded at 85.92 pence per euro and $1.5622.

Sterling has depreciated 1.2 percent in the past month, making it the worst performer among the 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes.

Factory output slid 0.7 percent from September, the biggest decline since April, according to the Office for National Statistics. The median forecast of 21 economists in a Bloomberg News survey called for a 0.3 percent decline. Overall industrial output, which includes mining and oil and gas, is also dropped 0.7 percent.

The National Institute of Economic and Social Research will publish its gross domestic product figure for the three months through November later today.

To contact the reporter on this story: Lucy Meakin in London at

To contact the editor responsible for this story: Daniel Tilles at

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