U.K. government bonds rose along with debt securities from higher-rated nations as signs China’s economic growth is slowing and tension in Ukraine boosted demand for the safest fixed-income assets.
Benchmark 10-year gilts advanced for a second day along with German bunds and U.S. Treasuries, while Asian and European stocks declined. The Bank of England will not sell all of the 375 billion pounds ($623 billion) of bonds it bought under its asset-purchase plan, Governor Mark Carney said yesterday. The pound fell to the weakest level this year against the euro and was little changed versus the dollar.
“There’s weak stocks, worries about Ukraine and worries about China,” said Marc Ostwald, a strategist at Monument Securities Ltd. in London. “There’s a general risk-off move. That’s where all of the support is coming from.”
The U.K. 10-year yield dropped three basis points, or 0.03 percentage point, to 2.75% at 4:11 p.m. London time, the biggest decline since March 3. The 2.25% gilt due in September 2023 rose 0.27, or 2.70 pounds per 1,000-pound face amount, to 95.855.
Germany’s 10-year yield slipped four basis points to 1.60%, while the rate on similar-maturity Treasuries fell three basis points to 2.74%. The MSCI Asia Pacific Index of shares dropped 1.4% and the Stoxx Europe 600 Index slid 0.9%.
China is scheduled to release retail sales and factory output data tomorrow after disappointing data on the world’s second-largest economy has fueled a rout in base metals this week. Citigroup Inc.’s economic surprise index for China dropped to minus 56.2, the lowest since June.
Germany told Russia it must switch course in Crimea by next week or risk more sanctions as Ukraine’s deposed president warned of a possible civil war.
Gilts returned 2.1% this year through yesterday, according to Bloomberg World Bond Indexes. Treasuries gained 1.5%, while German securities rose 2.1%.
U.K. policy makers said last week they would reinvest 8.1 billion pounds of funds related to their bond-buying program. The cash flow is associated with a gilt that matured on March 7, the Bank of England said.
The central bank today reinvested 1.35 billion pounds into gilts maturing between September 2021 and December 2028.
Carney said yesterday in testimony to the U.K. Parliament’s Treasury Committee that any gilt sales would only begin after interest rates have been raised “several” times.
The Debt Management Office is scheduled to auction 1.5 billion pounds of inflation-linked gilts due in November 2019 tomorrow.
The pound dropped 0.3% to 83.70 pence per euro after declining to 83.74 pence, the weakest since Dec. 27. The U.K. currency was at $1.6607, from $1.6617 yesterday.
Sterling has gained 13% in the past year, the best performer among 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The euro advanced 7.1%, while the dollar was little changed.