U.K. 10-year gilts rose for a second week, pushing yields to a record low, amid speculation the euro area’s debt crisis is still far from resolved, boosting demand for safer assets.
Two-year yields also reached a record low as reports showed unemployment surged and retail sales fell more than economists forecast in November, making it more likely that the Bank of England will add to its asset-purchase program. Gilts rose with Treasuries yesterday after a Labor Department report showed U.S. consumer prices stagnated last month, supporting the Federal Reserve’s view that inflation remains in check.
“Gilts have been buoyed due to the peripheral euro-zone fear, which has kicked on a level,” said Lee McDarby, head of dealing on the corporate and institutional treasury desk at Investec Bank Plc in London. “There appears to be no real answers to the euro-zone issue and the U.K. has stood alone and distanced itself.”
Ten-year gilt yields decreased 12 basis points, or 0.12 percentage point, to 2.04 percent at 4:59 p.m. London time yesterday. Earlier that day, it reached 2.049 percent, the least since Bloomberg began compiling the data in 1992. The 3.75 percent bond due September 2021 rose 1.08, or 10.8 pounds per 1,000-pound ($1,551) face amount, to 114.97. Two-year yields fell eight basis points to 0.31 percent after touching a record 0.309 percent.
The pound fell 1 percent this week to $1.5514. It strengthened 1.7 percent against the euro since Dec. 9, to 83.98 pence.
Sterling has risen 2.8 percent in the past three months, according to Bloomberg Correlation-Weighted Indexes, which track 10 developed-nation currencies. The dollar added 5.3 percent and the yen climbed 2.4 percent.
Investors bought British securities as an alternative to assets denominated in the euro as European Union leaders struggled to solve a debt crisis that has forced Greece, Ireland and Portugal to seek international bailouts. The turmoil has also engulfed Italy and Spain and prompted the bloc to create funds to help stricken economies.
Gilts may extend their gain next week on speculation a report will show consumer confidence slipped further this month, after dropping in November to its lowest level in more than 2 1/2 years. An index of sentiment fell to minus 32, from minus 31 in November, London-based research group GfK NOP Ltd. will say on Dec. 20, according to the median prediction of 17 economists surveyed by Bloomberg.
Bank of England Chief Economist Spencer Dale said in an interview this week that policy makers have scope to expand their 275 billion-pound bond-buying program to aid an economy facing at least one quarter of contraction by the middle of 2012.
Gilts have returned 16 percent this year through Dec. 15, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies. German bunds gained 9 percent and Italian bonds lost 7 percent.