National Grid hit by jump in UK debt yields

Public sector net borrowing in the UK only overshot the Chancellor’s target for the full fiscal year modestly, analysts said, but that was enough to push sovereign debt yields higher, knocking the likes of National Grid off their perch.

Westminster’s net cash requirement fell 34.0% during the fiscal year ending in March 2016 to £50.3bn, data from ONS revealed.

Nonetheless, that was enough to force the Debt Management Office to revise higher its target for Gilt issuance this fiscal year from £129.4bn to £131.5bn.

That took the wind out of the sails of interest rate-sensitive stocks such as National Grid, as the yield on the benchmark Gilt jumped 11 basis points to 1.59%.

On 19 April the stock had hit a 52-week high at 1,007p.

"The more the economy slows amid heightened uncertainty ahead of the June EU referendum, the more challenging the fiscal target of £55.5bn for 2016/17 will become.

“The Chancellor will certainly need growth to pick up once the referendum is out of the way, assuming that there is a vote to remain in the EU," Dr. Howard Archer, chief European+UK economist at IHS said.

Heading the other way were shares of banks, with shares in RBS tacking on 1.64% to 253.6p, HSBC higher by 1.40% to 471.9p and Lloyds up by 1.39% to 68.7p.

Banks’s shares have been rebounding of late on signs that some of the economy’s biggest bugbears, pessimism surrounding the Chinese economy and weak oil prices, might be fading for the time being.

Lenders also led gains on the Continent, with the DJ Stoxx 600’s bank sector index rose 1.44% to 155.91.

News on Thursday that the European Central Bank had left the door open to further easing if necessary also bolstered the sector, although some analysts were wary of the implications.

“Draghi unsurprisingly defended the Bank’s independence and even claimed that such comments (in reference to criticism from German officials) might dent the ECB’s credibility and hence policy effectiveness enough to warrant more stimulus than would otherwise have been required!”

“But the Bank is running out of options that it deems palatable. And with little or no support from fiscal policy, its measures are unlikely to generate strong growth or a meaningful and sustained rise in inflation,” Jennifer McKeown, senior European economist at Capital Economics said in a research note sent to clients.

Market chatter pointing to smaller than perceived risks of a successful Brexit vote, referencing recent poll results, may also have weighed on the prices of Gilts, pushing their yields higher.