Gilts Fall as Demand Drops at 20-Year Auction; Pound Advances
U.K. gilts fell for a second day after demand declined at an auction of 20-year bonds as investors sought higher-yielding alternatives.
The pound strengthened against the dollar and the yen as stocks advanced around the world after central bankers in the U.S. and Japan said they were considering additional stimulus measures. The 2 billion pound ($3.19 billion) sale of 20-year bonds attracted bids for 1.39 times the amount offered, down from 1.63 times at the previous auction last month.
“There’s limited demand at these low yields,” said Elisabeth Afseth, an analyst at Investec Bank Plc in London. “The yield is close to recent lows. There’s obviously a bit of a risk-on” trade and that is reducing demand for the safety of gilts, she said.
The yield on the benchmark 10-year gilt rose four basis points, or 0.04 percentage point, to 2.09 percent at 4:05 p.m. London time. The 4 percent bond due in March 2022 dropped 0.385, or 3.85 pounds per 1,000-pound face amount, to 116.985. The yield declined to 2.01 percent on April 10, the lowest level since Feb. 28.
Federal Reserve Vice Chairman Janet Yellen yesterday endorsed the central bank’s view that borrowing costs are likely to stay low through 2014. Fed Bank of New York President William C. Dudley said today he also supports the policy. Bank of Japan Governor Masaaki Shirakawa said in Tokyo that policy makers will “pursue powerful easing” to help overcome deflation.
U.K. gilts has handed investors a 0.5 percent loss this year, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies. U.S. Treasuries fell 0.4 percent, while German bunds rose 0.9 percent, the gauges show.
The yield on the 4.25 percent bonds due in June 2032, which were auctioned today, rose four basis points to 3.05 percent.
The FTSE 100 (UKX) Index of stocks advanced 1.6 percent, and the Standard & Poor’s 500 Index added 1.1 percent.
The pound advanced for a second day versus the dollar, gaining 0.3 percent to $1.5951, and rose 0.4 percent to 129.14 yen. Sterling dropped 0.2 percent 82.60 pence per euro.
The euro may decline to the lowest in almost two years against the pound, after failing to rise above a key level of resistance, according to Credit Suisse Group AG.
Europe’s shared currency is poised to decline to 81.41 pence over the next month after being unable to strengthen above 82.87 pence this week, Steve Miley, London-based head of foreign-exchange technical analysis, wrote in a note today.
An “inability to push above here highlights inherent market weakness,” Miley wrote. “With the 21-day moving average at 83.12 pence bearing down, the risks into April are firmly seen lower.” Resistance refers to an area where sell order may be clustered.
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