Gilt Yields Fall Most in Two Months on Greek Debt Concern; Pound Advances

Gilts rose, with 10-year yields dropping the most in two months, as European finance ministers held back a bailout package needed to prevent the Greek economy from collapsing, boosting demand for safer assets.

The pound strengthened against higher-yielding currencies as George Karatzaferis, who leads a party supporting the government of Prime Minister Lucas Papademos, said he couldn’t support the accord worked out for a new financing agreement in its present form. Sterling also rose for the first time in four days against the euro after a U.K. report showed producer prices climbed at the fastest pace in nine months.

“Today’s move is to do with what’s going on in Europe, it looks like the Greek deal has a long way to go,” and that is boosting safer assets, said Chris Walker, a foreign-exchange strategist at UBS AG in London. “We are bearish on pound-dollar at these levels but we think what’s going on in Europe” will cause the pound to rise against the euro, he said.

The yield on the 10-year gilt fell 10 basis points, or 0.1 percentage point, to 2.13 percent at 4:29 p.m. London time after dropping 11 basis points, the most since Dec. 8. The 3.75 percent bond due September 2021 gained 0.87, or 8.70 pounds per 1,000-pound ($1,576) face amount, to 113.95.

Greece is missing its debt-cutting targets, German Finance Minister Wolfgang Schaeuble told lawmakers in Berlin. He said Greece’s plans would leave its debt as high as 136 percent of gross domestic product by 2020, according to two people who took part in the meeting. That compares with the 120 percent foreseen in a 130 billion-euro ($171.3 billion) bailout being negotiated.

Weekly Loss

Karatzaferis said at a news conference in Athens that he continued to personally support Papademos and it was up to the prime minister if he wanted to retain the four members of the Laos party as ministers in the government.

The pound strengthened 0.4 percent to 83.7 pence per euro, trimming its weekly drop to 0.6 percent. The currency gained 2.5 percent against the South African rand, and advanced 0.7 percent versus the Mexican peso. It fell 0.4 percent to $1.5754.

The cost of goods at U.K. factory gates climbed by 0.5 percent in January from the previous month, the most since April, the Office for National Statistics said. The median forecast of economists in a Bloomberg News survey was for a 0.1 percent gain.

Sterling still headed for a weekly loss versus the euro after an industry report showed U.K. house prices fell to a six- month low, fueling speculation the Bank of England will increase bond buying to keep borrowing costs low.

The average price of a home in England and Wales dropped 0.2 percent in January from December, Acadametrics Ltd. and LSL Property Services Plc said. From a year earlier, values fell 1.4 percent, the quickest pace since September.

The Monetary Policy Committee yesterday raised the target for bond purchases by 50 billion pounds, less than the 75 billion pounds forecast by some economists.

“We are far from out of the woods when it comes to the economic data,” said Lee McDarby, head of dealing on the corporate and institutional treasury desk at Investec Bank Plc in London. “There is still scope for some more BOE stimulus and that pushes the chance of U.K. interest-rate increases far into the distance.”

To contact the reporter on this story: Emma Charlton in London at echarlton1@bloomberg.net

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

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