UK Government Bonds

London, United Kingdom (PressExposure) July 09, 2011 -- The UK debt crisis appears to be doing better than the rest of the Euro zone regardless of a disappointing £5bn government bond auction. Traders say the sale of British debt is benefiting from the European debt crisis as the UK is performing better in the credit markets with sterling gilts over Euro bonds.

The level of interest which was displayed for the five-year gilts, being sold by the Government's Debt Management Office (DMO), generated bids providing 1.56 times cover of the total amount. This was the lowest amount of attention given for 5 year gilts since July 2010.

Francis Diamond, a gilt strategist with JP Morgan, told Reuters: "It's not the best result for a gilt in the five-year sector."

He added: "We would normally expect to see some demand from overseas central banks but I think the low level of yields has put them off."

Marc Ostwald, from Monument Securities, had the opinion that selling five-year gilts with a yield below 2pc was always going to be hard. However, other debt experts argued the yield on the bond sale is a sign of the strength of UK gilts compared to other members of the Euro zone.

UK Bonds Compared to the Rest of Europe

The yield on the gilt auction held on the 21st June was 1.96pc. Comparing this to other European countries a recent five-year government bond issued by Germany had a yield of 2.17pc and another similar maturity issued by France was 2.6pc.

Greece recently issued a 5 year government bonds with a yield of 18.5pc. Greece is now considered to be the most risky debt in the world according to Standard & Poor's.

Although gilts seem to be faring ok in Britain there are still worries around the impact of the Coalition Government's spending cuts and the slow pace of economic recovery. The Government however does have the big advantage of shielding its exposure to the Greek debt crisis by declaring it will stay out of bail-out programmes.

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Press Release Submitted On: July 09, 2011 at 3:49 am
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