U.K. Gilts Decline After Bank of England Boosts its Asset-Purchase Program

U.K. government bonds fell after the Bank of England said it will expand its asset-purchase program to 325 billion pounds ($515 billion) and kept its key interest rate at a record low to help revive the U.K. economy.

The decision to raise the target by 50 billion pounds matched the median estimate of 50 economists in a Bloomberg News survey. One predicted no change and 15 predicted an increase of 75 billion pounds. The central bank left its benchmark interest rate at 0.5 percent, as predicted by all 56 respondents in a separate survey.

“Fifty billion is bang in line with consensus and may cause a little bit of retracement” in gilts, said Nick Stamenkovic, a fixed-income strategist at RIA Capital Markets Ltd. in Edinburgh.

The 10-year gilt yield rose two basis points to 2.21 percent at 12:22 p.m. London time after dropping to 2.15 percent. The 3.75 percent bond due September 2021 fell 0.195, or 1.95 pounds per 1,000-pound face amount, to 113.20.

The yield on the benchmark security climbed four basis points to 2.39 percent after the central bank’s Monetary Policy Committee raised the ceiling on bond purchases to 275 billion pounds on Oct. 6, starting a round of buying that ended on Feb. 2.

Gilts have handed investors a loss of 1.6 percent this year, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies, while German government bonds declined 0.8 percent.

The pound strengthened 0.3 percent to 83.57 pence per euro and also rose 0.3 percent $1.5861.

Sterling has weakened 0.9 percent this year, according to Bloomberg Correlation-Weighted Indexes, which track 10 developed-nation currencies. The dollar declined 3.2 percent, and the euro dropped 0.7 percent.

To contact the reporter on this story: Lucy Meakin in London at lmeakin1@bloomberg.net.

To contact the editor responsible for this story: Daniel Tilles at dtilles@bloomberg.net.

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