| LONDON, March 1
LONDON, March 1 Foreign investors sold British
government bonds in January at the fastest pace in nearly three
years, probably reflecting how funds are adjusting gilt holdings
after a buying spree late last year rather than nerves about
Brexit, analysts said.
Overseas investors sold a net 7.59 billion pounds ($9.4
billion) of gilts in January, the biggest monthly drop since
March 2014 and following on from 2.97 billion pounds of sales in
December, Bank of England data showed on Wednesday.
The central bank is watching closely for signs that foreign
investors - responsible for plugging Britain's big current
account deficit - are starting to shy away from British assets
as the process of leaving the European Union gets underway.
January's outflow scythed the rolling three-month total
purchases from foreign investors down to 5 billion pounds. Two
months ago that measure stood at 39.43 billion pounds, the
highest since BoE records began in 1986.
Overseas central banks and sovereign wealth funds devoured
gilts late last year to top up sterling portfolios battered in
dollar terms by the pound's post-Brexit vote plunge, and
January's sell-off was likely linked to sterling's 2 percent
rise against the dollar during the month.
"There is often a correlation between what overseas
investors do with gilts and what sterling is doing," said John
Wraith, UK economist and fixed income strategist at UBS.
Furthermore, January's sell-off probably also reflected
redemptions of 29 billion pounds of the 1.75 percent gilt that
matured on Jan. 22, much of which will have flowed overseas.
"In months where you have a maturity of a bond, its not
unusual to see a net outflow," said Sam Hill, an economist at
"It would make sense to wait until next month to see if
there is a reinvestment of the proceeds to cancel it out. It
would be premature to pin the net outflow on any Brexit-related
Analysts said they will watch for any further deterioration
that might yet suggest nervousness about Brexit among overseas
Britain's current account deficit is 5.9 percent of gross
domestic product, meaning Britain relies on "the kindness of
strangers", in the words of BoE governor Mark Carney, to balance
"It's going to be interesting," said Jason Simpson, fixed
income strategist at Societe Generale.
"Political worries in Europe could see flows out of French
bonds and into U.S. Treasuries and gilts. But if we see a run of
negative numbers then maybe that would be a sign that overseas
investors are steering clear of the UK for the obvious Brexit
($1 = 0.8091 pounds)
(Editing by Ken Ferris)