UK gilts extended declines as the Bank of England refused to buy bonds maturing in 2017 in Monday's auction, after traders aggressively drove up prices.
The Bank rejected all bids against the bonds it had been planning to buy as part of its QE programme as dealers drove the price of the bonds, which yield 8.75%, up to £140.78 ahead of the auction in the hope of selling the bonds back to the Bank.
The yield on a 10-year gilt climbed as the Bank said in a statement it had decided “to reject all offers against UKT 8.75 25/08/17 following significant changes in its yield in the run up to the auction,” Bloomberg reports.
Gilts had dropped earlier, along with bunds, after Germany and France’s leaders pledged to hammer out a plan to recapitalise the European banking system.
The BoE has never previously refused to buy government bonds as part of a reverse auction.
Last week the Bank increased its QE programme by a greater than expected £75bn in a bid to kick-start the UK’s ailing economy, while leaving interest rates on hold at 0.5%.
Its new round of asset purchases takes the Bank's quantitative easing (QE) programme to £275bn as fresh fears surface about the country's stalling recovery amid an escalation of the eurozone debt crisis.
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