UK bonds a safer bet than bunds

Tim Wallace
Follow Tim
BORROWING costs for the UK government fell below those of Germany for the first time in recent history yesterday, following Germany’s failure to sell all of its 10-year bonds in an auction on Wednesday.

Low yields indicate a lower level of risk in lending to a country.

Yields on Britain’s 10-year gilts fell to 2.16 per cent yesterday, but German bund yields rose to 2.194 per cent – a spread of 3.4 basis points (bps).

On the same day last month the spread stood at 43.6bps, with gilts having the greater yield, and the gap was an even greater 62.2bps a year ago.

Markets panicked after investors shunned Germany’s €6bn (£5.17bn) 10-year bund auction, buying only €3.889bn. Yesterday Eurozone leaders refused to endorse the use of stronger European Central Bank (ECB) interventions to weigh down yields.

Yesterday the sell-off continued, with the Dax losing 0.5 per cent and the FTSE 100 sliding 0.24 per cent.

The FTSE has now had nine straight days of drops – its longest downward stretch since 2003. The price of gold also lifted as the markets moved towards safer investments, while the euro slid again against the dollar.

Analysts warned that the jittery markets may have over-reacted. “Sometimes individual bond auctions throw up funny results, and after all Germany is a strong economy and bund yields have been falling steadily,” said Buck Consultants’ Simon Hill.