Gilt Buying by Overseas Investors Rises to Most Since 2008

Overseas investors boosted their U.K. government bond holdings by the most in more than three years in November as they sought refuge from the euro area’s sovereign debt crisis.

Net purchases climbed to 16.3 billion pounds ($25.5 billion), the biggest monthly increase in holdings since September 2008, according to Bank of England figures published today. That compares with net buying of 12.5 billion pounds the previous month, the data showed.

Gilts returned 17 percent last year, including reinvested interest, the most among 26 government markets tracked by Bloomberg and the European Federation of Financial Analysts Societies, as Prime Minister David Cameron cut government spending and the Bank of England resumed its debt-buying program. Investec Asset Management Ltd. is among investors predicting more outperformance by U.K. government bonds.

“The debt problem in the euro area and other drivers for safe-asset demand haven’t gone away,” said John Wraith, a fixed-income strategist at Bank of America Merrill Lynch in London. “We are confident these factors will re-emerge and that will support demand for gilts and other top quality government bonds.”

Gilts beat German debt, considered the euro area’s safest securities, by more than 7 percentage points last year, the most since 1998, the Bloomberg/EFFAS indexes show. U.S. Treasuries made about 10 percent.

Non-Resident Holdings

Non-resident investors bought more AAA rated gilts than they sold for a third consecutive month, the Bank of England data showed.

Foreign investors held 323.45 billion pounds of gilts as of June 30 last year, according to data from the Debt Management Office, which sells gilts on behalf of the British government. That’s around 30 percent of total gilts outstanding.

The yield on the 10-year gilt rose two basis points, or 0.02 percentage point, to 2.05 percent as of 4:38 p.m. London time. It reached a record low 1.93 percent on Dec. 30. The two-year note yield increased four basis points to 0.40 percent, after falling to an all-time low of 0.271 percent on Dec. 30.

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