Gilts draw record numbers of global investors International investors are buying record amounts of UK government bonds as demand is spurred by the Bank of England's emergency quantitative easing programme as well as Britain's status as a haven from turmoil in the eurozone. The government's long-term benchmark borrowing costs have fallen to lows last seen in the 1890s, helped by demand from some of the world's biggest sovereign wealth funds. International investors bought £28.87bn of gilts in October and November - the biggest amount over a two-month period since the data were first collected by the Bank in 1982. Ten-year yields fell to 1.96 per cent last week. They closed at 2.05 per cent on Wednesday. Demand has been supported by the Bank's decision in October to pump £75bn into the economy - through gilt purchases - in its second QE programme. John Wraith, fixed income strategist at BofA Merrill Lynch, said: "The UK is attractive to international investors because it is outside the eurozone. They have been reassured by the government's determination to be fiscally responsible and see the UK as a stable and safe place to invest. "Mr Gilts" good crisis Robert Stheeman has had a good financial crisis. Known in the markets as Mr Gilts, the chief executive of the UK Debt Management Office has seen his stock rise as eurozone markets have fallen. As head of the agency responsible for selling government bonds, the experienced banker has been praised by both Treasury officials and market participants for his deft handling of gilt sales. Although helped by the Bank of England's quantitative easing programme and the eurozone crisis, which has seen the UK become a haven, he has not been dealt the easiest of hands. After all, gilt sales this financial year are expected to rise close to £180bn, compared with just £10bn in 2000. He has had to think innovatively to ensure gilt auctions go smoothly as record amounts are being sold. It has seen the UK introduce new ways of issuing gilts, particularly for long-dated maturities that can be hard to sell. Syndications have been introduced to run alongside the traditional bond auctions. These syndications involve bankers actively pressing investors to buy bonds. Mr Stheeman has also travelled the world, informing key sovereign wealth funds in Asia of his plans and strategy, which has helped prompt their switching out of eurozone government bonds into gilts. Some big investors now favour gilts over German Bunds, which for years have been considered the most favourable market for big sovereign wealth funds wanting the safest assets. Indeed, the DMO is due to be presented with the award of bond issuer of the year at the prestigious IFR banking awards this month. Yet, Mr Stheeman is aware that market sentiment can turn quickly and yields can lurch higher. A key factor that may make 2012 harder for Mr Stheeman is the expected ending of quantitative easing, probably some time in the spring. Once the Bank, which has bought more than £250bn of gilts as part of QE so far, stops buying government bonds, the job of selling these securities may become a lot harder. For David Cameron, prime minister, and George Osborne, chancellor, the low interest rates associated with Britain's haven status are the biggest political and economic prize of the coalition's austerity programme, reassuring investors as the country has retained its top-notch triple A credit rating. Mr Cameron frequently boasts that Britain's borrowing costs are similar to those of Germany, claiming that Labour's alternative economic strategy would drive up interest rates. Some strategists warn that a further deterioration in the economy, which has helped pin down bond yields, could worry investors and lead to a sell-off in the gilts market. This would leave the UK in the precarious position of having a stagnating economy and rising borrowing costs. However, many economists are convinced that investors will retain faith in gilts this year. Philip Shaw of Investec said: "An ambitious budgetary consolidation plan was essential to gain market credibility and to ensure that the UK's medium-term fiscal dynamics remain sustainable... the UK's safe haven status could disappear if the government were to act imprudently or if the economic outlook worsened dramatically, but the likelihood is that gilt yields will remain low." In the Financial Times" New Year survey of 83 economists, the vast majority who expressed a view thought the government's borrowing costs would remain low in 2012. Elisabeth Afseth, fixed income strategist at Evolution Securities said: "The UK bond markets have never seen it so good. Some of the world's biggest funds are now buying gilts as they like the UK and the policy of the government. If rating agencies carry out their threat to downgrade the strongest economies in the eurozone, including Germany and France, the UK could be the only country left with a triple A rating in Europe. Low yields show that markets believe there is little prospect of the UK government defaulting and the coalition's deficit reduction plan is credible even in a low-growth environment. With similarly feeble prospects, Italy and Spain envy the cost at which the Treasury can borrow. As UK 10-year borrowing costs hover around 2 per cent, Italy's are nearly 7 per cent and Spain's over 5 per cent. But low longer-term yields also indicate an expectation of economic weakness ahead, which will force the Bank to keep interest rates at extremely low levels. In that respect, low yields are a sign of chronic economic weakness akin to that of Japan. Accordingly, if the government's borrowing costs rose because growth prospects improved, economists would be happy. Borrowing costs could also rise if the economic outlook worsened to an extent that undermined the government's debt sustainability, or if its deficit-reduction programme lost credibility. An easing in the eurozone crisis could also push up yields if other countries" bonds became relatively more attractive. Responding to the FT's economists" survey, Sir Alan Budd, former chairman of the Office for Budget responsibility, said: "If there is reduced fear of default among eurozone governments, the UK may lose some of its safe haven benefits. That will not be a matter of loss of faith in the UK but recovery of faith elsewhere. For the moment, the chancellor is losing little sleep over the prospect of higher borrowing costs. Treasury insiders point to strong demand in a successful government bond auction on Wednesday as evidence of continued market support. "Some analysts have warned that UK gilts would be hit if the eurozone recovers and makes the UK relatively less attractive," said one Treasury official. Others say Britain would be hit by association if the eurozone crisis gets worse: you can't have it both ways. Yet, strategists say the government cannot afford to be complacent. Mr Wraith said: "Gilt yields are at record lows because of the sluggishness of the economy. If economic conditions deteriorate further that could prompt a sell-off due to stubbornly high deficits.