U.K. Bonds Drop With Higher-Rated Peers as Haven Demand Wanesby
Britain's sovereign bonds still best performers this year
Borrowing costs fall, demand rises at five-year debt auction
U.K. government bonds declined for a second day along with other highly-rated securities that investors turn to in times of turmoil, as easing concern that the global economic outlook is worsening damped demand for haven assets.
Gilts, which outperformed developed-market peers this year as investors pushed back wagers on an interest-rate increase by the Bank of England, dropped even as a report showed construction output unexpectedly slowed last month. The U.K. Debt Management Office auctioned 3.5 billion pounds ($4.9 billion) of five-year securities on Wednesday at the lowest yield since November 2012.
German and U.S. government bonds also declined Wednesday as European equities climbed for a fifth day, reflecting easing concerns about the growth outlook in the world’s largest economies.
“Improved risk appetite is leading to a bit of an unwinding of safe-haven flows into core government bonds including gilts,” said Nick Stamenkovic, a fixed-income strategist at Edinburgh-based broker RIA Capital Markets Ltd. “The auction was better than the previous one, but still not great. The main impetus for gilts has come from the risk appetite we’ve seen globally.”
Benchmark 10-year gilt yields climbed six basis points, or 0.06 percentage point, to 1.46 percent as of 4:09 p.m. London time, extending Tuesday’s six basis-point increase. The 2 percent security due in September 2025 fell 0.535, or 5.35 pounds per 1,000-pound face amount, to 104.82.
Five-year gilt yields increased five basis points to 0.84 percent, after falling to 0.61 percent on Feb. 11, the lowest since April 2013. The DMO sold the five-year securities at a yield of 0.861 percent. Investors bid for 1.54 times the allotted amount, up from 1.07 times in January, which was the lowest bid-to-cover ratio for five-year debt since Bloomberg started tracking the data in 1999.