U.K. Bond Yield Drops to Lowest in a Year as Shares, Oil Decline

  • Stoxx Europe 600 Index skids 3.5%, most since August
  • Pound falls to weakest level against euro in one year

U.K. government bonds climbed, pushing down the 10-year yield by the most since July, as the global tumble in stocks added to investor concerns over international economic growth.

Traders also sought the relative safety of gilts as the Stoxx Europe 600 Index of shares fell by the most since August and closed at its lowest level since 2014. Crude oil traded in London and New York fell for a third day after no supply agreement emerged from Venezuela’s tour of producing nations.

“The big story is in European stocks,” said John Wraith, head of U.K. rates strategy at UBS Group AG in London. “This, along with the oil prices that have come off again quite sharply, are the main drivers of the bond market.”

The benchmark 10-year gilt yield declined 15 basis points, or 0.15 percentage point, to 1.41 percent, as of 5 p.m. in London, and earlier touched 1.40 percent, its lowest level since February 2015. The 2 percent security due September 2025 gained 1.345, or 13.45 pounds per 1,000-pound ($1,438) face amount, to 105.25.

Sterling dropped 0.7 percent to $1.4407, declining for a third day. The U.K. currency depreciated 0.8 percent to 77.53 pence per euro and touched 77.59, the weakest in a year.

U.K. assets also were undercut by a persistent uncertainty of the outcome of Britain’s planned referendum on European Union membership.

“The EU referendum is magnifying the size of the move which would have happened anyway, the same as it is everywhere else,” UBS’s Wraith said. “Brexit risk seems to be becoming fairly imminent right at the wrong time, when the market is already being volatile because of other reasons.”

Before it's here, it's on the Bloomberg Terminal.
LEARN MORE