U.K. gilts fell, with 10-year yields rising from the lowest level in seven months, as gains in European peripheral bond markets damped demand for the relative safety of Britain’s government debt.
The pound weakened for the first time in three days versus the euro even as a report showed U.K. business sentiment and hiring intentions improved last month. Italy’s 10-year bonds rose for a sixth day and Spain’s two-year yields fell to the lowest since October 2010 amid bets the Bank of Japan (8301)’s 7.5 trillion yen ($76 billion) of monthly bond purchases will boost investor appetite for higher returns.
“With peripheral bond spreads tightening again it looks as though the theme is that the effect of the BOJ intervention is to boost bonds in the periphery relative to those of core safe- haven governments,” said Sam Hill, a fixed-income strategist at Royal Bank of Canada in London. “The data calendar is light” in the U.K., he said.
The 10-year gilt yield rose seven basis points, or 0.07 percentage point, to 1.70 percent at 4:37 p.m. London time after dropping to 1.63 percent, matching the April 5 low that was the least since Sept. 5. The 1.75 percent bond due in September 2022 fell 0.59, or 5.90 pounds per 1,000-pound ($1,530) face amount, to 100.44.
Demand for the bonds of Europe’s so-called peripheral and semi-core nations has been boosted after the BOJ also said on April 4 it would set a two-year horizon for its inflation goal. European Central Bank President Mario Draghi said the same day policy makers “stand ready to act” to bolster the region’s flagging economy.
Italian 10-year yields dropped four basis points to 4.34 percent, while Spanish two-year yield declined as much as nine basis points to 1.97 percent, the lowest since October 2010.
U.K. gilts advanced last week as a U.S. report showing employers added fewer jobs in March than economists forecast boosted demand for Britain’s fixed-income assets.
The securities have returned more than any euro-denominated government bond market since Cyprus shut its banks on March 16 after an agreement with international creditors to impose a levy on deposits. Investors who chose gilts earned twice as much as those who sought safety in U.S. Treasuries or German bunds.
The pound fell 0.6 percent to 85.23 pence per euro after depreciating to 85.26, the weakest since March 25. The U.K. currency declined 0.5 percent to $1.5253.
A U.K. confidence index climbed to 92.2 in March from 90.6 the previous month and a hiring gauge increased to 96 from 95, accountancy firm BDO LLP said. Still, its output index, at 93, remains below the 95 level that indicates positive growth one quarter ahead.
The pound has declined 4.5 percent this year, according to Bloomberg Correlation-Weighted Indexes that track 10 developed- nation currencies. The dollar has gained 2.6 percent and the euro rose 0.9 percent.
Gilts returned 2.4 percent this year through April 5, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies. German bonds gained 1.1 percent and Treasuries rose 0.7 percent.
The Debt Management Office is scheduled to sell 3.5 billion pounds of benchmark 10-year gilts tomorrow, before offering 1.6 billion on inflation-linked bonds due in 2024 on April 11.