UK government bonds suffer biggest fall since 2009 as pound smashed in virus panic

By Andy Bruce

LONDON, March 18 (Reuters) - British government bond yields posted their biggest one-day rise since 2009 as the coronavirus crisis prompted a fire-sale of sterling assets, including government debt, sending the pound to its lowest level in more than three decades.

The 10-year gilt yield jumped by 23.6 basis points to 0.79%, the biggest increase since April 2009, according to data from Refinitiv.

After main trading finished, the 10-year bond fell further, pushing its yield as high as 0.88%, its highest since December.

Although the yield itself remains very low in historical terms, Wednesday's sharp rise reflected a stampede into the safety of the U.S. dollar, which lopped 4% off the value of the pound.

British shares also tumbled by more than 4% as more companies reported financial damage from the coronavirus outbreak.

Measures announced from the government and Bank of England have so far failed to stem concerns about the outlook for jobs and businesses' survival, raising expectations that more extreme measures to prop up the economy will be needed.

BoE Governor Andrew Bailey said on Wednesday that policymakers would consider the effect of the falling pound, although he had no view on its level.

"Factors such as the UK's monetary and fiscal response or Brexit are beside the point: this is about the U.S. dollar, which is proving unstoppable as global financial markets stare into the abyss of crisis-like conditions," Ranko Berich, head of market analysis at Monex Europe, a foreign exchange company.

Euro assets were also a partial beneficiary of the flight from Britain.

The gap between British and German benchmark 10-year gilt yields widened by almost 20 basis points on the day to 108 basis points.

Thursday will bring another test of investor sentiment in Britain when the Debt Management Office is due to sell 3.25 billion pounds ($3.77 billion) of the benchmark five-year gilt .

The five-year yield similarly rose by 15 basis points during main trading hours to 0.60%, before increasing further after to 0.689% as the sell-off continued. ($1 = 0.8624 pounds) (Reporting by Andy Bruce; Editing by Lisa Shumaker)