Newspaper article The Evening Standard (London, England)

Gilts Weighed Down by Burden of Bank Rescue

Newspaper article The Evening Standard (London, England)

Gilts Weighed Down by Burden of Bank Rescue

Article excerpt

Byline: MICKEY CLARK

THE gilts market appears to be paying a heavy price for the Government's refinancing of the UK's stricken banking industry.

Prices among longer-dated bonds slumped by as much as ?2 today as the Government made it clear it will be issuing ?37 billion of extra bonds to finance the planned rescue. Dealers said the fall in yields at the long end of the market was forcing institutional investors to focus on shorter-dated issues or riskier equities in search of better returns.

The Debt Management Office (DMO) said sales of extra bonds will begin next Monday but, given that an auction of Treasury 4?% 2013 is already under way, the programme will not kick off with the sale of a five-year gilt. The DMO added that the revision to its remit does not take into account any changes to the Government's forecasts for the public finances.

The London Stock Exchange and Financial Services Authority today rushed out a statement making it clear there were no plans for bank shares to be suspended after the announcement of emergency Government funding. An LSE spokesman said, hopefully: "The market should open as normal." Indeed, it did with most bank shares continuing to fall. Royal Bank of Scotland, which is tapping the Government for ?20 billion made up of ?5 billion of preference shares and ?15 billion underwritten by the Government, slipped 6.6p to a record low of 65.1p 0.4p shy of its proposed rights issue. There will be no dividend for the foreseeable future, and therefore little incentive to buy the shares and plenty of reason for income funds to dump them. Even so, Merrill

Lynch has raised its rating on RBS to a buy.

Lloyds TSB was initially marked higher after extracting renewed terms for its takeover of HBOS, down 29.2p at 95p. But they later relapsed, falling 12.6p to 176.8p. The Government has insisted no dividend will be paid until the preference shares are covered. Said one dealer: "Lloyds shares have been sold during the past five years on the strength of their yield. …

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