Bonds round-up: Current account deficit lifts gilts
Gilts moved higher today as investors digested a melange of economic data.
News that the UK's current account deficit jumped to a record high of £20bn during the three months ended September, up from £13.7bn the previous quarter, boosted demand for government debt. The deficit measured 5.7% of GDP, also a record level.
The thinking in the gilt markets now is that the government will be amenable to a devaluation of sterling as a means of reducing the deficit which thus removes one obstacle to further interest rate cuts.
Meanwhile, public sector net borrowing was up at an all-time high of £11.208bn in November, more than the £10bn economists had predicted.
That figure heightened fears that Chancellor Alistair Darling's forecasts for the current fiscal year may have been too ambitious.
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A more encouraging portent for the UK's economic prospects was the GDP figures. Annual UK GDP was revised higher to 3.3% for the third quarter from 3.2% previously.
The yield on the 10-year gilt dived 4 basis points to 4.69%.
US Treasuries were subdued, on evidence that the efforts of central banks to reduce money market rates are working. The Federal Reserve will hold a second emergency $20bn auction of loans today. The yield on the 10-year Treasury note rose 1 basis point to 4.04% as prices eased a little.
In Europe, government bonds were down a little, as money market rates fell for a third day in succession. The yield on the 10-year bund eased 1 basis point to 4.28%.
