Gilts fell for a second day after data showed economic growth beat forecasts and Standard & Poor’s raised the U.K’s credit outlook, damping expectations that the Bank of England would buy more bonds to support the recovery.
Yields on the 10-year gilt were pushed to the highest in more than a month after a 5 billion-pound ($7.9 billion) sale of 4.25 percent bonds maturing in 2040 through banks. The bonds were priced to yield 2.5 basis points more than the 4.25 percent gilt due 2039, the U.K. Debt Management Office said. Data yesterday showed gross domestic product climbed 0.8 percent in the quarter ended September, double the 0.4 percent predicted by economists in a Bloomberg survey.
“Gilts have fallen on the stronger-than-expected growth survey, which has removed expectations of monetary easing starting in November,” said Matteo Regesta, an interest-rate strategist at BNP Paribas SA in London.
The yield on the 10-year note climbed 10 basis points to 3.16 percent as of 4:26 p.m. in London, the highest since Sept. 21. Two-year gilt yields were little changed at 0.72 percent after earlier advancing to 0.79 percent, the highest since Sept. 13. Thirty-year bond yields added 10 basis points to 4.22 percent, reaching an 11-week high.
Gilt sales over the past two days have resulted in the yield curve flattening, Regesta said. “The selloff is an opportunity to reload longs, particularly at the longest end of the curve where there is more value,” he said.
U.K. bonds returned investors 8.7 percent this year, beating an 8 percent gain from German debt and 8.4 percent from U.S. Treasuries, according to indexes compiled by Bloomberg and the Federation of Financial Analysts Societies.
The pound strengthened against all 16 of its most-traded peers yesterday after the GDP release, which was the first quarterly report from a Group of Seven nation. Central banks around the world are debating whether to add more stimulus through asset-purchase programs, known as quantitative easing, to help sustain the global recovery.
The figures eased concern the Bank of England will add to its 200 billion pounds bond-purchase program as the government prepares to implement the deepest spending cuts since World War II to tackle a record 156 billion-pound deficit. Prime Minister David Cameron’s government unveiled spending reductions that will peak at 81 billion pounds in 2015 last week, and are estimated to eliminate 490,000 jobs.
S&P also affirmed its top AAA rating for the U.K. and restored its outlook on the ranking to “stable” from “negative,” saying the coalition government’s cuts had put the U.K.’s finances on “a more sustainable footing.”
The pound appreciated 0.1 percent against the euro to 87.37 pence, after yesterday strengthening as much as 1.7 percent, its biggest intraday gain in more than a year. Sterling was 0.4 percent weaker at $1.5781 and fell 0.2 percent to 128.73 yen.
The pound has depreciated 4.5 percent this year against a basket of its developed-country peers, according to Bloomberg Correlation-Weighted Currency Indexes, making it the second- worst performing currency after the euro.
To contact the editor responsible for this story: Daniel Tilles at firstname.lastname@example.org