U.K. Gilts Rise a Fourth Day as Cyprus Boosts Demand for Safety
By Lukanyo Mnyanda - Mar 19, 2013
U.K. gilts advanced for a fourth day as the European Union’s insistence that Cyprus raises cash from bank depositors threatened to deepen the euro region’s sovereign-debt crisis, boosting demand for safer assets.
The 10-year gilt yield was set for the longest run of declines in two months. Finance chiefs from the 17 euro countries kept the pressure on Cyprus, telling the country yesterday to raise 5.8 billion euros ($7.5 billion) from bank depositors to unlock emergency loans. The pound was 0.6 percent from its strongest level in five weeks against the euro before a report that economists said will show Britain’s inflation accelerated in February to the fastest since May.
“It’s the Cyprus stuff that people are looking at,” said Sam Hill, a fixed-income strategist at Royal Bank of Canada in London. “Whilst there have been points where the gilt market’s safe-haven status has been more open to question than in the past, that was in the absence of a flare up in euro-area risks. There’s an acceptance that there’s still merit in resorting to gilts at times of difficulty.”
The 10-year gilt yield fell one basis point, or 0.01 percentage point, to 1.89 percent at 9:16 a.m. London time, headed for the longest run of declines since the period through Jan. 16. The 1.75 percent bond maturing in September 2022 gained 0.085, or 85 pence per 1,000-pound ($1,508) face amount, to 98.83. The rate dropped to 1.86 percent yesterday, the lowest since Dec. 31.
The pound depreciated 0.2 percent to $1.5078 and was little changed at 85.82 pence per euro, after reaching 85.31 pence yesterday, the strongest level since Feb. 11.
Inflation Quickens
U.K. consumer prices rose 2.8 percent from a year earlier last month, up from 2.7 percent in January, the Office for National Statistics in London will say today, according to the median prediction of 35 analysts surveyed by Bloomberg.
The pound has advanced 1.5 percent in the past week, the best performer among 10 developed-market currencies tracked by Bloomberg Correlation-Weighted Indexes. The euro fell 0.6 percent and the dollar gained 0.2 percent.
Sterling has weakened 7.2 percent against the greenback this year amid speculation the Bank of England will boost its asset-purchase program to revive the economy and counter the impact of Chancellor of the Exchequer George Osborne’s austerity program. The central bank last increased the target in July, boosting it by 50 billion pounds to 375 billion pounds.
Osborne is due to present his annual budget tomorrow.
U.K. government bonds earned 0.6 percent this month through yesterday, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies.
To contact the reporter on this story: Lukanyo Mnyanda in Edinburgh at lmnyanda@bloomberg.net
