Gilts Decline Eighth Day as Inflation Stays at Fastest Since May

U.K. government bonds fell, with 10- year gilts dropping for an eighth day, as a government report showed inflation stayed at the fastest since May, weakening the case for more central bank asset purchases.

Benchmark securities extended their losing streak to the longest since February 2011 before Bank of England policy makers release tomorrow the minutes of their December meeting, when they kept their bond-buying program on hold. The pound strengthened to an 11-week high versus the dollar.

“The general consensus is that inflation will remain sticky,” said Michael Hewson, a market analyst at CMC Markets Plc in London. “If inflation stays high, then there could be upward pressure on gilt yields because it would suggest that the Bank of England would be very reluctant to print more money.”

The 10-year yield climbed two basis points, or 0.02 percentage point, to 1.91 percent at 10:57 a.m. London time after rising to 1.93 percent, the highest level since Oct. 25. The 1.75 percent bond due in September 2022 dropped 0.195, or 1.95 pounds per 1,000-pound ($1,621) face amount, to 98.565.

Benchmark yields may rise as high as 2.20 percent in the next two months if they climb above their peak from September, Hewson said. The rate climbed to 1.99 percent on Sept. 17, the most since May.

Consumer prices rose 2.7 percent last month from a year earlier, the same as in October, the Office for National Statistics said in London. A separate report showed producer prices unexpectedly declined 0.2 percent in November.

Inflation ‘Stickiness’

Bank of England Chief Economist Spencer Dale raised concerns last week that inflation may show “stickiness,” complicating the task of policy makers seeking to stimulate the economy with price growth above their 2 percent goal.

U.K. gilts handed investors a loss of 1.1 percent this month through yesterday, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies. German bonds gained 0.2 percent and Treasuries declined 0.6 percent.

The pound rose 0.1 percent to $1.6212 after appreciating to $1.6226, the strongest level since Sept. 28. The U.K. currency was little changed at 81.32 pence per euro.

Sterling has gained 1.5 percent this year, according to Bloomberg Correlation-Weighted Indexes, which track 10 developed-market currencies. The euro declined 1.4 percent and the dollar fell 3.3 percent.

Bank of England officials kept the central bank’s asset- purchase target at 375 billion pounds and the key interest rate at a record low of 0.5 percent at their Dec. 6 meeting.

To contact the reporter on this story: Lukanyo Mnyanda in Edinburgh at lmnyanda@bloomberg.net

To contact the editor responsible for this story: Paul Dobson at pdobson2@bloomberg.net

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