U.K. 10-year government bonds rallied for the first time in six days as speculations rise about increased economic measures by the Bank of England amid government spending cuts.
Bank of England Governor Mervyn King said Tuesday that some parameters of U.K. inflation were “extremely subdued,” indicating quantitative easing measures by the central bank, which include the purchase of bonds.
Chancellor of the Exchequer George Osborne is scheduled to announce a plan today that will enable the government to purge most of the 156 billion-pound, or $245 billion, deficit by 2015.
The bonds, which are also known as gilts, are expected to benefit from this plan. The yield on the 10-year gilt dipped three basis points to 2.97 percent as of 8:15 a.m. in London. The 4.75 percent security maturing in March 2020 saw an increase of 0.16, or 1.6 pounds per 1,000-pound, or $1,572, in face amount, to 114.36. The yield on the two-year note shed two basis points to 0.62 percent.
Bank of England has expressed no intentions of increasing its benchmark interest rate, which is currently at a record low of 0.5 percent since March 2009. The central bank has purchased 200 billion pounds, or $315 billion, of government bonds to fuel economic growth. Despite the regulatory measures, King said yesterday there is “too little money” in the economy.
U.K. inflation rate was estimated at 3.1 percent in September; steady for the last seven months, and higher than the 3 percent limit set by the government.
The Treasury has set a target of earning 165 billion pounds, or $260.2 billion, from the sale of gilts in the current fiscal year.
