Ward: UK banks must buy gilts to prevent rise in yields

Strong buying of government debt by the UK's banking sector is needed to prevent a rise in gilt yields as overseas demand wanes, says Simon Ward, the chief economist at Henderson Global Investors.

He argues the recent sell-off in gilts would have been more severe but for heavy buying by banks and building societies. According to monetary statistics for November, released yesterday, banks and building societies bought £10bn of gilts in November, the largest amount since January 2009. The purchases offset sales of £5.7bn by domestic non-bank investors, while overseas buying slowed to £3.3bn, the smallest since June. "Despite the November fall, overseas investors have absorbed £50.6bn of net gilt issuance of £107.8bn in the first eight months of 2010-11, or 47%," Ward says. ...