U.K. government bonds advanced, pushing 10-year yields to the lowest in more than two weeks, as concern euro-area leaders are moving too slowly to end the debt crisis as investors seek the relative safety of British assets. Gilts outperformed German bonds for a second day after demonstrations turned violent yesterday in Madrid and Catalan President Artur Mas said the time had come for the Spanish region to seek self-determination. The Confederation of British Industry’s gauge of annual sales growth will climb from a four- month low, analysts said before the report today. The pound advanced against the euro. “The situation in Spain helps to underpin demand for gilts,� said Mohit Kumar, head of European fixed-income strategy at Deutsche Bank AG in London. “There is also quarter- end demand for the U.K. government bonds. Gilts are expensive at these levels, but an argument against going short at this point is the uncertainty about Spain.� A short position is a bet an asset will decline. The 10-year gilt yield fell six basis points, or 0.06 percentage point, to 1.76 percent at 10:35 a.m. London time after dropping to 1.73 percent, the lowest since Sept. 11. The 1.75 percent bond due in September 2022 gained 0.495, or 4.95 pounds per 1,000-pound ($1,629) face amount, to 99.87. The yield difference between 10-year gilts and German bunds narrowed to 23.1 basis points from 23.4 basis points yesterday. Pound Gains Gilts returned 0.4 percent this quarter through yesterday, according to Bank of America Merrill Lynch indexes. German bonds gained 0.5 percent during the same period. The pound strengthened 0.2 percent to 79.53 pence per euro. It was little changed at $1.6198, after touching $1.6150, the lowest level since Sept. 14. Sterling has strengthened 2.1 percent this year, according to Bloomberg Correlation-Weighted Indexes, which track 10 developed-market currencies. The euro tumbled 3.2 percent and the dollar weakened 2.5 percent. The 30-year break-even rate, the difference in yield between nominal and index-linked bonds, fell for a third day, sliding as much as four basis points to 2.46 percentage point, the least since Sept. 10. A U.K. government consultation on potential changes to the formula used to calculate Britain’s retail-price index has led to market concern about the impact on inflation-linked gilts, the Debt Management Office chief said today. U.K. index-linked bond sales are “very high� and the debt manager is committed to the issuance program, Robert Stheeman, chief executive officer of the U.K.’s debt agency, said in a speech at the Euromoney Sterling Conference in London today. Recommendations on changes to the index will probably be published in January, he said. To contact the reporter on this story: Lucy Meakin in London at lmeakin1@bloomberg.net To contact the editor responsible for this story: Paul Dobson at pdobson2@bloomberg.net

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