U.K. 10-Year Government Bonds Rise as Retail Sales Drop for a Second Month

U.K. government bonds advanced after retail sales fell for a second month in February, stoking concern that Britain’s economic recovery is faltering.

The pound weakened against the dollar after a report showed U.K. house prices slid for the third time in four months. Gross domestic product in the euro region declined 0.3 percent from the third quarter, the European Union’s statistics office said today, confirming an initial estimate published on Feb. 15. Britain sold 1 billion pounds ($1.6 billion) of 0.75 percent inflation-linked gilts due in March 2034.

“The softer tone to the economic data over the past few days has taken a bit of the wind out of the sails of the risk market,” said Brian Barry, a strategist at Investec Bank Plc in London. “That has given investors plenty of reason to pause for thought. Continued periphery concerns should prove supportive for gilts.”

The 10-year gilt yield dropped three basis points, or 0.03 percentage point, to 2.15 percent at 10:35 a.m. London time. The 4 percent security due March 2022 rose 0.325, or 3.25 pounds per 1,000-pound face amount, to 116.535. Two-year yields were little changed at 0.43 percent.

Sales at stores open at least 12 months, measured by value, fell 0.3 percent from a year earlier, according to the British Retail Consortium.

The pound fell 0.6 percent to $1.5778. Sterling was little changed at 83.29 pence per euro.

House Prices

U.K. house prices fell 0.5 percent in February, Halifax said today. The median estimate in a Bloomberg News survey of 12 analysts called for a 0.3 percent increase.

The Bank of England’s Monetary Policy Committee will keep its bond-buying target at 325 billion pounds when it meets on March 8, according to all the 45 economists in a Bloomberg News survey.

Gilts have handed investors a 1.2 percent loss this year, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies. U.S. Treasuries have dropped 0.4 percent and German government bonds are little changed, the indexes show.

Sterling has declined 0.6 percent in 2012, according to Bloomberg Correlation-Weighted Indexes, which track 10 developed-nation currencies. The dollar weakened 2.3 percent and the euro fell 0.6 percent.

-- Editors: Mark McCord, Nicholas Reynolds

To contact the reporter on this story: David Goodman in London at dgoodman28@bloomberg.net

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

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