Legal & General Share News (LGEN)

* Thirty-year gilts suffer biggest fall in over 4 weeks * Pension changes likely to reduce demand for annuities * Pensioner bond brings unexpected cut in gilt issuance * Lower issuance helps short-dated gilts outperform Bunds By David Milliken LONDON, March 19 (Reuters) - Long-dated British governmentbonds tumbled on Wednesday after finance minister George Osbornesaid older people would no longer have to invest pension savingsinto annuities that provide an income for life. Thirty-year bonds suffered their sharpestone-day fall in more than four weeks, pushing their yield up by4 basis points on the day to a six-day high above 3.49 percent. Long-dated bonds are frequently bought by insurers who sellannuities to the public, as the regular interest matches up withthe payments that insurers make as part of the annuity. Shorter-dated government bonds fell less, as the amount ofgovernment bonds being issued in the next financial year wasforecast to be more than 20 billion pounds below what the markethad expected at 128.4 billion pounds ($213.5 billion). The reason for this is not an unexpected improvement inBritain's budget deficit - which will remain one of the largestin Europe at 5.5 percent of GDP next year - but anothergovernment measure to tap pensioners for savings. Later this year the government will allow pensioners toinvest up to 10,000 pounds each in retail bonds paying interestof 4 percent over three years or 2.8 percent over a year. By contrast, the government can currently raise money fromthe markets at a cost of just 1 percent over three years, and the current Bank of England rate is 0.5 percent. The government will also increase the amount of money thatindividuals can invest in premium bonds by 10,000 pounds. Robert Stheeman, chief executive of the UK Debt ManagementOffice, told Reuters that these two measures alone reduced theamount Britain needed to raise via gilts by 13 billion pounds. The lower gilt issuance caused 10-year gilts topare losses caused by a sharp fall in German Bund prices earlierin the day, although yields still finished the day 2 basispoints higher at 2.70 percent. The gilt's spread over 10-year Bunds tightened 2basis points on the day to its lowest since March 4 at 108.9basis points - a sharp contrast to the 30-year gilt, whichunderperformed versus German debt. Marc Ostwald, fixed income strategist at MonumentSecurities, said Wednesday's changes were likely to causelong-term damage to demand for longer-dated bonds, as they bothreduced the requirement on Britons to make long-term investmentsand increased short-term investment returns. "The full impact will only be felt over months and years,"he said. "It could become one of those horrible attritionalmoves." Ostwald also said the move went against the government'sstrategy of locking in very low long-term interest rates byselling more long-dated gilts. But Sam Hill, a strategist at Royal Bank of Canada, was morepositive, saying that other potential changes - such as allowingworkers with final-salary pension schemes to take a cash potinstead - could create a new source of demand for annuities andlong-dated gilts. "By giving defined benefit (pension) scheme members theopportunity to switch to defined contribution schemes, the stockof assets held by those schemes could lead to more significantimpacts on financial markets," he wrote in a note to clients. * June long gilt future 109.85 (-0.12) * June 2014 short sterling 99.455 (-0.005) * March 2015 short sterling 99.10 (-0.010) * 10-year yield 2.70 percent (+2 bps) -------------------KEY MARKET DATA---------------------------Long Gilt futures <0#FLG:> Gilt benchmark chain Short Stg futures <0#FSS:> Cash market quotes Deposit rates Sterling cross rates UK debt speedguide -------------------KEY MARKET REPORTS--------------------------Gilts Sterling Euro Debt Dollar U.S. Treasuries Debt reports --------------------GILT STRIPS DATA -------------------------Gilt strips data All gilt strips Gilt strips IO Gilt strips PO A list of all the strippable British gilts ($1 = 0.6014 British Pounds) (Editing by Alison Williams and Susan Fenton)