year bonds record strongest week since 2009 after stocks routed
By David Milliken
LONDON, Dec 7 (Reuters) - British 30-year government bonds
held on to hefty price gains on Friday to chalk up their
strongest week in nearly a decade as fears of a U.S.-China trade
war and a chaotic Brexit kept shares close to a two-year low.
Yields on Britain's benchmark 30-year gilt
remained near a one-month low of 1.819 percent struck on
Since trading opened on Monday, the bond has shed 25 basis
points, the biggest Monday-to-Friday fall in yield since March
2009, when the Bank of England launched its quantitative easing
bond purchase plan during the global financial crisis.
Shorter-dated gilt yields rose as the bonds gave back some
of the week's price gains after equities lifted off Thursday's
Ten-year gilt yields increased by three basis
points on the day to 1.28 percent, moving away from Thursday's
three-month low of 1.225 percent.
Britain's yield curve is flattening, similar to in the
United States where fears of a recession mounted after five-year
yields fell below those of two-year Treasuries on Tuesday,
suggesting investors saw darker economic prospects.
Britain itself risks nearer-term economic turmoil if -- as
looks likely -- Prime Minister Theresa May loses a vote on her
preferred Brexit plan on Tuesday, taking Britain closer to
leaving the bloc without any transition deal on March 29.
The increased cost of ultra-long bonds for investors should
make Britain rethink the extent to which it will rely on these
gilts to finance its public borrowing needs next year, Bank of
America Merrill Lynch told clients on Friday.
"Forming a view on the UK ahead of next week's Brexit vote
seems difficult. However the recent moves in the long end of the
curve raise some fundamental questions for the gilt market,"
Bank of America strategist Ralf Preusser said.
"The Debt Management Office should radically shift its
composition of issuance."
Demand from British pension funds and insurers for
long-dated government bonds has softened as pensioners took
advantage of rule changes that made it easier for them to avoid
buying an annuity on retirement.
Bank of America said it expected demand to recover, but that
it would be less risky for the DMO if it switched some of its
issuance to shorter maturities and began issuing gilts with
maturities under five years.
The DMO needed to accept unusually low bids last month at a
20-year bond auction, though a smaller-scale sale of 30-year
gilts on Thursday drew the strongest demand since March.
(Reporting by David Milliken; Editing by Angus MacSwan)
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