ECB bond plan may dim gilt charm: UK debt head

Wed Sep 26, 2012 9:10am EDT
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By Olesya Dmitracova

LONDON (Reuters) - A plan by the European Central Bank to buy the sovereign bonds of stricken euro zone countries could reduce the safe-haven appeal of gilts though it has not done so yet, Britain's chief debt issuer said on Wednesday.

"There could be a fading of what I would call, bluntly, the panic-buying," Debt Management Office chief executive Robert Stheeman told Reuters on the sidelines of the Euromoney Sterling Conference.

"It could. I don't think that's really happened yet," he said when asked whether gilts' safe-haven appeal had ebbed as a result of the ECB scheme, unveiled earlier this month but not activated so far.

Investors have been piling money into the perceived safety of British government bonds as they try to avoid the risks from the euro zone debt crisis, driving gilt yields down to record lows despite the country's own huge budget deficit.

Stheeman said gilts' safe-haven status was unlikely to disappear completely given the government's austerity plan aimed at erasing the deficit and the Bank of England's quantitative easing gilt purchases to support the recession-hit economy.

The central bank has been pumping newly-created money into the fragile economy by buying British government bonds, with total purchases set to reach 375 billion pounds in November.

Stheeman told the conference participants earlier that the gilt market had not been disrupted by this large-scale quantitative easing program.

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