Gilts Decline as Cyprus Concern Wanes; Pound Drops Against Euro

U.K. government bonds fell, with 10-year gilts halting a five-day rally, as Cyprus’s banks reopened with little signs of any capital flight after a European Union bailout forced losses on depositors.

The pound weakened against the euro as Cypriot lenders opened at midday local time with lines of about 15 to 20 people waiting to enter branches in the capital Nicosia, reducing demand for safer assets. Gilts also declined as a U.K. government report showed service industries expanded at the fastest pace in five months.

“There’s a bit of relief and by extension that knocks on to all the so-called safe havens” including gilts, said Marc Ostwald, a fixed-income strategist at Monument Securities Ltd. in London. “People were assuming the worst was going to happen and it’s not materializing quite in that dramatic way.”

The 10-year gilt yield climbed four basis points, or 0.04 percentage point, to 1.76 percent at 12:05 p.m. in London after falling to 1.71 percent, the lowest level since Nov. 13. The 1.75 percent bond due in September 2022 dropped 0.3, or 3 pounds per 1,000-pound face amount, to 99.945.

The pound weakened 0.3 percent to 84.68 pence per euro after appreciating to 84.16 pence, the strongest level since Jan. 24. The U.K. currency was little changed at $1.5139.

Services, which account for about three quarters of Britain’s economy, rose 0.3 percent from December, when they dropped 0.4 percent, the Office for National Statistics said in London. That’s the biggest increase since August.

Gilts returned 1 percent this quarter through yesterday, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies. German bunds gained 0.5 percent, while U.S. Treasuries were little changed.

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

Press spacebar to pause and continue. Press esc to stop.

Bloomberg reserves the right to remove comments but is under no obligation to do so, or to explain individual moderation decisions.

Please enable JavaScript to view the comments powered by Disqus.