Gilts Snap 3-Day Decline as Greece Concern Boosts Safety Demand

Gilts snapped three days of declines as concern that Greece will struggle to implement the austerity measures in its bailout plan boosted demand for the relative safety of U.K. government bonds.

Yields on 10-year government bonds fell from the highest level since December. The pound weakened against the euro as short-term demand for euro-region assets was boosted after Greece won 130 billion euros ($172 billion) in aid. Sterling slid for the first time in five days against the dollar amid speculation its 1 percent rally in the past four days was excessive.

“Inflows to gilts accelerate each time there’s a fresh wave of worry about Greece,” said John Wraith, a fixed-income strategist at Bank of America Merrill Lynch in London. “When some of that’s alleviated, those flows reverse.”

Yields on the 10-year gilt fell one basis points to 2.22 percent at 4:25 p.m. London time, after reaching 2.25 percent, the most since Dec. 7. The 3.75 percent bond due September 2021 advanced 0.085, or 85 pence per 1,000-pound ($1,585) face amount, to 113.125. Two-year note yields were two basis points higher at 0.45 percent.

European finance ministers earlier today agreed to give Greece the aid it needs to avoid bankruptcy next month. The nation signed up to a program of austerity and economic reform aimed at slashing debt to 120.5 percent of gross domestic product by 2020 from about 160 percent last year.

Gilts Sale

Gilts also advanced as the U.K. debt agency sold 3.75 billion pounds of index-linked bonds maturing in March 2062. The security, sold by banks, was priced at 113.456, equivalent to a real yield of 0.0995 percent, the Debt Management Office said today in a statement.

U.K. government revenue exceeded spending by 7.75 billion pounds, compared with a surplus of 5.2 billion pounds a year earlier, the Office for National Statistics said today in London. The median of 10 forecasts in a Bloomberg News survey was 6.3 billion pounds. January is the biggest month of the year for tax collection.

Chancellor of the Exchequer George Osborne is refusing to bow to pressure from opposition politicians to ease back on his fiscal squeeze or cut taxes to promote growth when he presents his budget next month. Moody’s Investors Service said last week that while the U.K.’s Aaa rating was at risk from the crisis in Europe, the government’s commitment to deficit reduction supported the top grade.

The pound fell 0.3 percent to $1.5802 after rising to $1.5881 yesterday, the strongest since Feb. 9. Sterling gained 0.5 percent to 83.97 pence per euro.

“The package for Greece removes some of the market uncertainty so that’s good in the short term,” for the euro against the pound, said Peter Kinsella, a senior currency strategist at Commerzbank AG in London. “But we think implementation of the package is going to be fraught with difficulties.”

Sterling has dropped 0.6 percent over the past month, according to Bloomberg Correlation-Weighted Indexes, which track 10 developed-nation currencies. That extends this year’s loss to 1.3 percent, the indexes show.

To contact the reporter on this story: Emma Charlton in London at echarlton1@bloomberg.net

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

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