U.K. Gilts Advance After World Bank Report Spurs Safety Demand
Gilts advanced for a second day after the the World Bank said it had cut its global growth forecast, fueling demand for safer assets.
Gilts also rose with Treasuries and bunds. The pound rose to a four-month high against the dollar, breaking through its 200-day moving average for the first time in almost five months. The U.K. Debt Management Office sold 2.25 billion pounds of government debt maturing in 2032. European stocks were little changed after falling to a seven-week low.
“After all the turmoil in equity markets we have got a bit of safe-haven buying in bond markets,” said Marc Ostwald, a strategist at Monument Securities Ltd. in London. “You’re going to have global growth at around 2.2 percent if the World Bank is right and you’re certainly not going to be tightening in that arena.”
The 10-year gilt yield fell two basis points, or 0.02 percentage point, to 2.12 percent at 4:51 p.m. London time after dropping three basis points yesterday, the most since May 30. The 1.75 percent security due in September 2022 rose 0.16 or 1.60 pounds per 1,000-pound face amount, to 96.88.
The global economy will expand 2.2 percent this year, less than a January forecast for 2.4 percent growth and slower than last year’s 2.3 percent, the World Bank said in a report released yesterday in Washington.
The MSCI Asia Pacific Index (BRIT) of stocks tumbled 2.2 percent, erasing this year’s gains, while the Stoxx Europe 600 Index dropped as much as 1.7 percent to the least since April 23.
The European equity benchmark has lost 6.5 percent since Federal Reserve Chairman Ben S. Bernanke said on May 22 that the central bank may pare its asset-purchase program if the U.S. economy shows sustainable improvement.
The U.K. debt office sold the 2032 gilts at an average yield of 3.004 percent, compared with 2.661 percent at a previous auction of the securities on Oct. 9. Investors bid for 1.45 times the amount of bonds sold, down from a so-called bid-to-cover ratio of 2.12 in October.
Gilts handed investors a loss of 1.8 percent this year through yesterday, according to the Bloomberg U.K. Sovereign Bond Index. German bonds dropped 1.1 percent and Treasuries fell 1.5 percent, separate Bloomberg indexes show.
The Bank of England will start providing forward guidance on monetary policy in a manner similar to the U.S. Federal Reserve when Mark Carney replaces Mervyn King as governor next month, former U.K. policy maker Adam Posen said today.
“What I’m pretty sure Carney and the Monetary Policy Committee will do by August is some form of forward guidance,” Posen told Francine Lacqua in an interview on “The Pulse” on Bloomberg Television in London.
The pound gained 0.1 percent to $1.5695 after rising to $1.5738, the highest since Feb. 11. It broke through its 200-day moving average, at $1.5701 for the first time since Jan. 18. Sterling strengthened 0.3 percent to 84.84 pence per euro after appreciating to 84.70 pence yesterday, the strongest level since May 21.
The pound has gained 5.1 percent in the past three months, the best performer in the Bloomberg Correlation-Weighted Indexes, which track 10 developed-market currencies. The dollar lost 0.6 percent and the euro appreciated 2.4 percent.