Thursday, 29 November 2012 03:28
LONDON: British government bond futures rose to a one-week high on Wednesday, as safe-haven assets were supported by fresh concerns about the US fiscal cliff and comments from a Bank of England official.
The December gilt future settled 83 ticks higher at 120.15 after hitting a nine-day high of 120.31 set earlier in the session, and was broadly in line with German Bund futures which settled 72 ticks higher.
Ten-year gilt yields fell 9 basis points to 1.76 percent. Their spread versus Bund yields was 2 basis points tighter at just under 40 basis points.
Investors were largely focused on talks in the United States to avert the "fiscal cliff" of automatic tax hikes and spending cuts due to kick in next year and which could tip the world's biggest economy into recession and depress the global outlook.
"Gilts are significantly higher ... it's partly a move that's in line with other core sovereign bond markets on nerves about the fiscal cliff potentially not being resolved," said John Wraith, fixed income strategist at BofA Merrill Lynch Global Research.
Comments from the Bank of England's Charlie Bean also weighed on investors' minds.
In an interview with Bloomberg News, Bean said further quantitative easing gilt purchases could be an effective way to boost the economy in future.
"We haven't closed the door forever on further asset purchases and it would be incorrect to say that we've decided they're ineffective at the current juncture," Bean said.
A Reuters poll published on Wednesday showed economists saw a 40 percent chance of more asset purchases by the BoE, down from 45 percent two weeks earlier, and none expect more asset purchases after next week's policy meeting.
Bean's comments broadly fit the tone of remarks from BoE Governor Mervyn King and other members of the BoE's Monetary Policy Committee who addressed British legislators on Tuesday.
The main domestic focus for investors on Thursday will be October consumer credit figures, as well as the BoE's half-yearly Financial Stability Report and news conference from King.
The BoE released its mortgage approvals data earlier than expected on Wednesday, which showed a rise to 52,982 in October from the previous month's figure of 50,415.
Next week's Autumn Statement from Britain's finance minister George Osborne is also a key point of interest for markets.
"It may result in changes to the fiscal stance which would have a direct impact on the monetary stance and the outlook for gilts," said Wraith. "Also, any revisions to the borrowing numbers change the gilt remit and can have an influence on perceptions about the UK sovereign rating."
Copyright Reuters, 2012