(Bloomberg) -- With the start of the European Central Bank’s quantitative easing program potentially just days away, U.K. government bonds are yielding the most relative to similar-maturity Italian debt since 2007. Benchmark 10-year gilt yields, which were more than 500 basis points below their Italian peers during Europe’s debt crisis, have climbed from a record low set in January as investors brought forward bets on an interest-rate increase. At the same time, the ECB’s imminent 1.1 trillion euro ($1.2 trillion) bond-buying plan is suppressing borrowing costs across the euro region. The divergence in policy has pushed the pound to its strongest level against the euro in more than seven years. “The recent underperformance in gilts reflects growing expectations that the next move in U.K. rates will be up, while the start of sovereign QE by the ECB signals that policy will remain accommodative for some time,� said Nick Stamenkovic, a fixed-income strategist at broker RIA Capital Markets Ltd. in Edinburgh. “The continued drive for yield suggests that peripheral yields will continue to compress.� U.K. 10-year gilts yields increased four basis points, or 0.04 percentage point, to 1.83 percent as of 11:45 a.m. London time. That’s about 48 basis points more than their Italian peers. The yield difference, or spread, is the most since September 2007. In January 2012, Italian 10-year bonds yielded 515 basis points more than gilts. Britain’s 10-year debt yielded 48 basis points more than equivalent Spanish securities, and six basis points less than similar-maturity Portuguese bonds. Demand Falls Benchmark 10-year gilts declined for a fourth day Tuesday as demand at a five-year debt auction fell to the lowest level in more than 15 months. The Debt Management Office auctioned 3.5 billion pounds ($5.4 billion) of gilts due in July 2020 at an average yield of 1.408 percent on Tuesday. Investors bid for 1.35 times the amount of securities allotted, the lowest bid-to-cover at a five-year auction since June 2013. Gilts lost 4.6 percent in February, according to the Bloomberg World Bond Indexes. Italian bonds gained 2.2 percent that month and Spain’s returned 1.5 percent, the indexes show. Bank of England Governor Mark Carney told lawmakers last week that officials can look beyond deviations in inflation that are largely caused by energy and food prices. Fellow Monetary Policy Committee member Martin Weale said that the benchmark rate may rise earlier than markets expected. BOE officials will set policy on March 5, with all 51 economists in a Bloomberg survey forecasting interest rates will be held at 0.5 percent, where they have been since 2009. The ECB has an opportunity Thursday to flesh out the features of the expanded asset-purchase program it unveiled in January when it holds a policy meeting in Cyprus the same day. Investors are currently fully pricing a 25 basis-point increase in U.K. borrowing costs by March 2016, compared with April yesterday, according to MPC-dated forward Sonia fixings data provided by ICAP Plc. That assumes the current three basis-point spread for Sonia fixings below the Bank Rate would return to zero once the BOE raises rates. The pound gained 0.2 percent to 72.64 pence per euro on Tuesday, after touching 72.34 pence a day earlier, the strongest level since December 2007. Sterling was little changed at $1.5371. To contact the reporter on this story: David Goodman in London at dgoodman28@bloomberg.net To contact the editors responsible for this story: Paul Dobson at pdobson2@bloomberg.net Keith Jenkins, Paul Armstrong

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