Bond markets show continued faith in UK as another gilt auction is oversubscribed

Britain has received another vote of confidence from the bond markets today after a sale of gilts was concluded successfully, and even better received by investors than Tuesday's auction . The government auctioned £1.1bn of 1.875% index-linked gilts due in 2022 this morning, and the auction was oversubscribed, or "covered" in market slang, 2.49 times. Over the past year, the cover has ranged between 1.6 and 2.1 times for gilts . Also, the sale of £2.25bn of 2027 gilts on Tuesday was 2.47 times oversubscribed, suggesting that investors' faith in the government's ability to tackle Britain's record budget deficit has, if anything, improved since the election. The government is paying an interest rate, or yield, of 0.765% on top of inflation . This is less than it paid in February, another positive sign. Gilt futures rose today, outperforming German bunds, as the new government's pledge to go ahead with £6bn of public spending cuts provided further support to UK government bond prices. And the cost that investors pay to protect themselves against a potential default of British debt fell to $74,000 for each $10m of debt, down $3,500, according to data from Markit. Analysts said that the credit market was encouraged, for now at least, by the new coalition government between the Conservatives and the Liberal Democrats. "We believe that the coalition should be slightly positive for UK-based credits in the short run given that it removes considerable uncertainty arising from a Lib-Lab government and that deficit-cutting measures have been outlined as top priority," BNP Paribas said in a note to investors.