Gilts Rise, Index-Linked Yield Drops on Inflation Data

U.K. government bonds advanced for a third day and 10-year index-linked yields dropped to a record as a report showed inflation stayed at the fastest since May.

Sterling gained versus the euro for the first time in eight days after an index of house prices rose last month to the most in 2 1/2 years. Consumer prices increased an annual 2.7 percent in December from a year earlier, matching the readings in the previous two months, the Office for National Statistics said. Retail-price inflation rose to 3.1 percent from 3 percent in November.

The 10-year gilt yield fell one basis point, or 0.01 percentage point, to 2.03 percent at 9:47 a.m. London time, extending their slide since Jan. 11 to seven basis points. The 1.75 percent bond due September 2022 rose 0.08, or 80 pence per 1,000-pound ($1,609) face amount, to 97.59.

The yield on U.K. 10-year inflation-linked bonds tumbled to as low as minus 1.01 percent, the least since Bloomberg started collecting the data in 1992.

Gilts have handed investors a loss of 1.5 percent this month through yesterday, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies. German bonds also dropped 1.5 percent and Treasuries fell 0.3 percent.

Sterling gained 0.1 percent to 83.18 pence per euro, halting its longest losing streak since October. The pound was little changed at $1.6082.

The U.K. currency has weakened 1.6 percent this year, the second-worst performance after the yen according to Bloomberg Correlation-Weighted Indexes, which track 10 developed-market currencies. The euro advanced 1.1 percent, while the dollar fell 0.5 percent.

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

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

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