U.K.’s Longest Bonds Drop After BOE Has Successful QE Purchase

  • Central bank receives offers of 2.67 times bonds sought
  • Ten-year gilt yield climbs from record-low reached Monday

U.K. long-dated government bonds fell after investors lined up to sell them to the Bank of England in its first successful purchase operation of that debt segment since expanding its quantitative-easing program this month.

One week after failing to receive enough sell orders in a similar transaction, the BOE on Tuesday said it had an excess of offers for gilts coming due in more than 15 years compared with the 1.17 billion pounds ($1.52 billion) in securities it sought to buy.

“It will be a relief to the Bank that this has been well-covered and that a decent amount of the purchases were made at levels that were slightly below where the market had been trading,” said Jason Simpson, a fixed-income strategist at Societe Generale SA in London. “Unlike last week, they were not forced to pay above market prices.”

The BOE this month boosted its QE program’s goal by 16 percent to 435 billion pounds, trying to ward off the risk of recession by injecting money again into the economy through buying bonds, as signs that Britain’s decision to leave the European Union started to hit confidence and business activity.

Bonds Decline

The yield on 30-year gilts rose four basis points, or 0.04 percentage point, to 1.31 percent as of 3:26 p.m. London time, as investors judged the availability of debt maturing in three decades was not as scarce as previously envisaged. Earlier it had fallen by as much as two basis points.

The yield on benchmark 10-year gilts climbed three basis points to 0.56 percent, up from its record low of 0.501 set Monday.

The yield difference, or spread, between 30-year gilts and two-year gilts was little changed at 114 basis points. The cover ratio for the reverse auction was 2.67 times compared with 0.96 on Aug. 9.

While purchases of shorter-maturity bonds drew an abundance of offers last week when QE was revived, longer-term debt is mostly owned by pension funds and insurers who, analysts say, are typically less likely to sell.

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