LONDON: British 30-year government bonds hit a record high on Thursday, after weak German inflation data boosted the attraction of fixed income investment and added to seasonal investment flows into long-dated gilts.
Germany's annual inflation rate fell to 0.5 percent in November, its lowest in nearly five years and a development that suggests the risk of deflation in the euro zone has not yet abated.
Thirty-year gilt yields fell to an all-time low of 2.686 percent at 1333 GMT, down more than 4 basis points on the day.
"Definitely if you look at the spike in prices, that would fit (with the German data), but there is also decent general buying interest out there," said Andy Chaytor, fixed income strategist at Nomura.
Thirty-year gilt yields have tumbled by 50 basis points since mid-September, reflecting concerns about stagnation in the euro zone and Japan and comments from the Bank of England that interest rates are unlikely to rise until late 2015.
November was a popular time for British pension and investment funds to add to their bond portfolios before liquidity started to dry up in December, Chaytor said.
Such funds are under long-term regulatory pressure to move more of their investments into safer assets such as long-dated gilts. Chaytor said he saw little value for general investors in 30-year gilts when they were yielding more than 3 percent, never mind at current yields.
Yields on 10- and 20-year gilts fell by more than 4 basis points to their lowest since May 2013 and September 2012 at 1.932 percent and 2.505 percent respectively .
The yield premium that two-year gilts offer over German Bunds reached its tightest in six months, narrowing by 3 basis points to 53.9 basis points, while 10-year spreads touched a six-week low of 122.7 basis points.
Next week, finance minister George Osborne offers his half-yearly fiscal update and the UK Debt Management Office publishes revised gilt issuance plans.
Underlying measures of borrowing are above target this year, but many analysts expect less of an increase in the sum the government wants to raise from the gilt market this financial year, as one-off factors lower cash borrowing needs.
Comments
Comments are closed for this article.