BLBG:Gilts Fall on Bets Central Bank Buying Is Over; Pound Weakens
U.K. 10-year government bonds declined for a third day amid speculation the Bank of England will refrain from resuming asset purchases this year and as sovereign debt dropped around the world.
Benchmark yields climbed to the highest since April after the central bank said yesterday U.K. lenders increased the availability of mortgages and company loans last quarter as its Funding for Lending program took effect. The pound weakened for a second day against the dollar after an industry report showed U.K. service industries shrank for the first time in two years.
“Yesterday’s credit conditions survey is relatively encouraging for the Funding for Lending Scheme and there is a focus away from gilt purchases,” said Simon Peck, a rates strategist at Royal Bank of Scotland Group Plc in London. “The backdrop to that is a risk-on tone which has been needed for gilt yields to push higher. Yields above 2 percent are the right level in an environment where gilt purchases are not on the cards.”
The U.K. 10-year yield rose three basis points, or 0.03 percentage point, to 2.10 percent at 10:51 a.m. London time after climbing to 2.13 percent, the highest level since April 30. The 1.75 percent bond due in September 2022 fell 0.21, or 2.10 pounds per 1,000-pound face amount, to 96.975. The yield has jumped 28 basis points this week.
Higher Yield
Investors demanded a higher yield to hold U.K. 10-year bonds instead of their French equivalents for the first time since April 11, 2011, according to data compiled by Bloomberg based on closing prices.
Gilts have underperformed French securities since Standard & Poor’s lowered its outlook on Britain’s top credit rating to negative on Dec. 13, citing weak economic growth and a worsening debt profile.
Treasuries and German bunds also declined as demand for safer assets waned. Treasury 10-year yields increased five basis points to 1.96 percent and bund yields climbed five basis points to 1.53 percent.
The pound dropped for the first time in three days against the euro as Markit Economics and the Chartered Institute of Purchasing and Supply said their gauge of U.K. services fell to 48.9 last month from 50.2 in November. A reading below 50 signals contraction.
The U.K. currency declined 0.5 percent to $1.6030 after sliding to $1.6027, the weakest level since Dec. 10. Sterling depreciated 0.2 percent to 81.16 pence per euro.
Gilts have returned 1.2 percent over the past 12 months, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies. German bunds gained 3.8 percent, while French bonds returned 10 percent.
To contact the reporter on this story: Neal Armstrong in London at narmstrong8@bloomberg.net
To contact the editor responsible for this story: Paul Dobson at pdobson2@bloomberg.net
