U.K. 10-year gilts advanced for a second week as economic reports added to evidence the U.K. recession is deepening, fueling speculation that the Bank of England will extend its monetary-stimulus program.
The gains pushed the 10-year yield to the lowest level in four weeks. The central bank will expand its bond-purchase program again this year, the British Chambers of Commerce said yesterday, a day after the Confederation of British Industry said Britain’s economy will probably shrink in 2012 for the first time since 2009. Gilts maintained their gains after Federal Reserve Chairman Ben S. Bernanke said he would not rule out a resumption of so-called quantitative easing measures.
“The overall backdrop for gilts remains fairly positive near term as the economic picture remains poor,” said Nick Stamenkovic, a fixed-income strategist at RIA Capital Markets Ltd. in Edinburgh. “Clearly the Bank of England is keeping the door open for another round of quantitative easing.”
The 10-year gilt yield fell five basis points, or 0.05 percentage point, this week to 1.48 percent at 4:28 p.m. London time yesterday, after declining to 1.44 percent, the lowest level since Aug. 2. The 4 percent bond due in March 2022 rose 0.49, or 4.90 pounds per 1,000-pound ($1,586) face amount, to 122.325. Two-year yields fell four basis points to 0.09 percent.
An index of consumer sentiment stayed at minus 29 in August, GfK NOP Ltd., a London-based research group said in an e-mailed report yesterday. The median prediction of 19 economists surveyed by Bloomberg was minus 27.
Britain’s central bank will expand its quantitative-easing program to 425 billion pounds later this year from 375 billion pounds, the London-based BCC wrote in a report yesterday. Officials will hold it at that level until early 2014 when they start to raise the key interest rate, it said.
A report by the British Retail Consortium will show retail sales fell 0.5 percent, after July’s 0.1 percent gain, according to the median prediction of five economists surveyed by Bloomberg before the Sept. 4 report. The Bank of England is due to announce its latest policy decision two days later.
Gilts have returned 4.4 percent this year through Aug. 30, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies. German bunds gained 4 percent and U.S. Treasuries earned 2.3 percent.
The pound rose 0.3 percent in the week to $1.5862 yesterday, extending its gain this month to 1.2 percent. Against the euro, it slipped 0.1 percent to 79.21 pence, down 1.1 percent in August.
To contact the reporter on this story: Lukanyo Mnyanda in Edinburgh at firstname.lastname@example.org