UK 30-year bonds record strongest week since 2009 after stocks routed

LONDON: British 30-year government bonds held on to hefty price gains on Friday to chalk up their strongest week in nearly a decade as fears of a US-China trade war and a chaotic Brexit kept shares close to a two-year low.

Yields on Britain's benchmark 30-year gilt remained near a one-month low of 1.819 percent struck on Thursday.

Since trading opened on Monday, the bond has shed 25 basis points, the biggest Monday-to-Friday fall in yield since March 2009, when the Bank of England launched its quantitative easing bond purchase plan during the global financial crisis.

Shorter-dated gilt yields rose as the bonds gave back some of the week's price gains after equities lifted off Thursday's lows.

Ten-year gilt yields increased by three basis points on the day to 1.28 percent, moving away from Thursday's three-month low of 1.225 percent.

Britain's yield curve is flattening, similar to in the United States where fears of a recession mounted after five-year yields fell below those of two-year Treasuries on Tuesday, suggesting investors saw darker economic prospects.

Britain itself risks nearer-term economic turmoil if -- as looks likely -- Prime Minister Theresa May loses a vote on her preferred Brexit plan on Tuesday, taking Britain closer to leaving the bloc without any transition deal on March 29.

The increased cost of ultra-long bonds for investors should make Britain rethink the extent to which it will rely on these gilts to finance its public borrowing needs next year, Bank of America Merrill Lynch told clients on Friday.

"Forming a view on the UK ahead of next week's Brexit vote seems difficult. However the recent moves in the long end of the curve raise some fundamental questions for the gilt market," Bank of America strategist Ralf Preusser said.

"The Debt Management Office should radically shift its composition of issuance."

Demand from British pension funds and insurers for long-dated government bonds has softened as pensioners took advantage of rule changes that made it easier for them to avoid buying an annuity on retirement.

Bank of America said it expected demand to recover, but that it would be less risky for the DMO if it switched some of its issuance to shorter maturities and began issuing gilts with maturities under five years.

The DMO needed to accept unusually low bids last month at a 20-year bond auction, though a smaller-scale sale of 30-year gilts on Thursday drew the strongest demand since March.