Debt office: Global gilt demand to be robust despite Brexit

LONDON: Overseas appetite for UK government bonds should remain resilient in the face of Brexit uncertainty as investors seek high-quality and liquid assets in their portfolios, according to the country’s debt office.

Foreign investors have shown no sign of reducing their appetite for gilts since Britons voted to leave the European Union (EU) last year, debt management office chief executive Robert Stheeman said.

While uncertainty surrounding the UK’s talks to leave the EU has clouded the outlook, international demand for gilts has been boosted with the pound’s slump since Brexit, making holding the securities more attractive to overseas investors.

Stheeman’s comments come ahead of foreign buyers giving their latest verdict on the notes, with the Bank of England (BoE) releas- ing its latest data on international demand for gilts yesterday.

“While some overseas investors may take short-term tactical decisions regarding investing in gilts, we would expect the overall strategy particularly of overseas institutional investors to continue to focus on holding high-quality or liquid assets which will continue to be supportive of gilts,” Stheeman said in an emailed response to questions.

“A continuing goal is to improve investor relations and understand better the nature of international demand for gilts.”

The yield on gilts, although little changed from the end of 2016, remains well above corresponding German or French debt.

The yield on 10-year UK government bonds was up one basis point at 1.26% on Monday, compared with 0.34% and 0.68% for their counterparts in Germany and France.

Non-resident investors bought a net £3.6bil (US$4.8bil) of notes in September, according to BoE data, with the second large month of consecutive buying reassuring the market after outflows in July. — Bloomberg

A continuing goal is to improve investor relations and understand better the nature of international demand for gilts. Robert Stheeman