year gilts extend their slide but other bonds stabilize


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LONDON — Yields on 30-year British government bond prices rose on Tuesday further towards their recent peak but borrowing costs on other gilts fell after the Bank of England expanded its market support to include purchases of index-linked bonds.

After shooting up by more than 30 basis points at one point on Monday, the yield on the 30-year gilt was up six basis points at 4.776% at 3:45pm (1445 GMT) having touched a high of 4.826% earlier in the day.

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That was the highest yield since Sept. 28 when the BoE began to buy British bonds to quell turmoil in the markets that was triggered by the tax-cutting plans of Prime Minister Liz Truss’s new government and put pension funds at risk.

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Charles Hepworth, investment director at GAM Investments, said a 23% fall in the value of the 30-year gilt over the past month suggested Britain’s monetary credibility was close to being lost.

“This needs to be sorted as soon as possible or wider cracks will start to build, but credibility is very difficult to restore once lost,” he said in a statement.

Two- and five-year yields were down about 9 to 10 basis points while their 10- and 20-year equivalents were flat.

Long-dated inflation-protected gilt yields mostly turned slightly positive on the day after the BoE said it had accepted 1.95 billion pounds’ ($2.16 billion) worth of linkers in its first index-linked buy-back operation.

The BoE later said it had accepted 1.36 billion pounds of conventional gilts in its second buy-back of the day.

The central bank is due to end its emergency buy-back program on Friday. Earlier on Tuesday, a pensions industry group urged the BoE to extend the support, possibly beyond the end of this month.

($1 = 0.9020 pounds) (Writing by William Schomberg)


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