Gilts Gain as BOE’s Bean Says Door Still Open for Bond Purchases
U.K. government bonds rose, with 10- year yields falling the most in two months, after Bank of England Deputy Governor Charles Bean said the central bank hasn’t ruled out further asset purchases to boost the economy.
Gilts advanced along with Treasuries and German bunds amid speculation U.S. lawmakers will fail to reach agreement on avoiding the so-called fiscal cliff of automatic spending cuts and tax increases, boosting demand for the safest assets. The pound weakened against most of its major counterparts.
Bean’s comments are “supportive for the gilt market,” said Craig Veysey, head of fixed income at Sanlam Private Investments Ltd. in London, a unit of Sanlam Group, which oversees $72 billion. “We don’t think just because the Monetary Policy Committee decided not to push ahead with more quantitative easing at their last opportunity, they’re not going to do some more in future.”
The 10-year gilt yield dropped eight basis points, or 0.08 percentage point, to 1.77 percent at 4:42 p.m. London time after falling as much as 10 basis points, the most since Sept. 26. The rate declined to 1.75 percent, the lowest since Nov. 19. The 1.75 percent bond due in September 2022 climbed 0.725, or 7.25 pounds per 1,000-pound ($1,600) face amount, to 99.81.
U.K. bonds “can be relatively well-supported into year- end,” Veysey said in an interview with Linzie Janis on Bloomberg TV’s “Countdown.”
Bank of England policy makers voted 8-1 at their November meeting to refrain from expanding the 375 billion-pound asset- purchase program to cap borrowing costs and spur growth.
“We haven’t closed the door forever on further asset purchases and it would be incorrect to say that we’ve decided they’re ineffective at the current juncture,” Bean said in an interview with Bloomberg News published today. “The bang for buck might be a bit less now than it was in 2009. That doesn’t mean to say that you don’t want to do any more of it, it just means that to get the same effect, actually you have to do even more than before.”
U.K. gross domestic product rose 1 percent in the three months through September, matching an earlier estimate, a government report showed yesterday.
U.S. lawmakers are trying to reach agreement to avert $607 billion of automatic tax increases and spending cuts from taking effect at the beginning of 2013. U.S. Senate Majority Leader Harry Reid said yesterday he was “disappointed” in the lack of progress in the discussions.
Gilts returned 2.6 percent this year through yesterday, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies. German bunds gained 3.4 percent and U.S. Treasuries earned 2.6 percent.
The pound dropped 0.2 percent to $1.5996 after rising to $1.6056 yesterday, the strongest since Nov. 2. Sterling was little changed at 80.78 pence per euro.
Economists say a Bank of England report tomorrow will show mortgage approvals increased for a fourth month in October. Lenders granted 51,500 mortgages last month, up from 50,024 in September, according to a Bloomberg News survey.
Sterling has gained 1.1 percent this year, according to Bloomberg Correlation-Weighted Indexes, which track 10 developed-market currencies. The euro declined 2.4 percent and the dollar fell 2.1 percent.