Investors buy £2bn worth of government bonds

• Pension funds and insurance companies bid nearly twice the amount of 30-year gilts
• Imminent auction of five-year gilt more important indicator of fallout from pound’s weakness

Nick Fletcher and Elena Moya
Guardian [UK]
2 March 2010

Investors snapped up £2bn worth of government bonds today, despite fears that UK gilt issues could come under pressure due to worries about the country’s budget deficit and the prospect of a hung parliament following the next election.

A day after sterling hit a nine month low against the dollar on economic and political concerns, pension funds and insurance companies put in bids for nearly twice the amount of 30-year gilts on offer. The Debt Management Office (DMO) said bids totalling £3.8bn had been received for the September 2039 gilts, meaning the auction was covered 1.92 times. The average of the past five 30-year auctions was 1.63 times.

Jason Simpson, a rates strategist for Royal Bank of Scotland, said: “The auction went very well and the short yield tail suggested people were very keen to buy the bond. Typically, the long end of the bond market is the domain of pension funds, which are not so affected by movements in sterling.”

A successful series of debt auctions is a key part of the government’s plans to finance measures to pull the economy out of its longest recession on record, in the face of a budget deficit that totals 12% of GDP, about £180bn.

The article continues at the Guardian.

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