Gilt Yield Rises to Two-Year High Before Jobs Data, BOE Minutes

U.K. 10-year government bond yields reached the highest in almost two years before a report that economists said will show jobless claims fell for a ninth month in July, weakening the case for additional monetary stimulus.

Claimants for unemployment benefits dropped by 15,000 in July, while the jobless rate stayed at 7.8 percent in the second quarter, according to Bloomberg News surveys of analysts. The Bank of England has pledged to keep interest rates low while unemployment remains above 7 percent. It is scheduled to publish the minutes of its July 31-Aug. 1 policy meeting at 9:30 a.m. London time. The pound was little changed.

“If we see a fall in the unemployment rate, it will fuel fears that interest rates may rise earlier than the Bank of England’s projections suggest, and that will be bad news for the gilts market,” said Nick Stamenkovic, a fixed-income strategist at RIA Capital Markets Ltd. in Edinburgh. “Unemployment data will be more important than usual.”

Benchmark 10-year gilt yields were little changed at 2.59 percent at 9:15 a.m. London time after earlier climbing to 2.62 percent, the highest since Oct. 28, 2011. The 1.75 percent bond maturing in September 2022 was at 93.24. Two-year gilt yields were also little changed, at 0.42 percent.

Sterling was at 85.95 pence per euro after reaching 85.35 pence yesterday, the strongest level since July 4. The pound traded at $1.5433 from $1.5449 yesterday.

Policy Makers

Central bank Governor Mark Carney said last week policy makers plan to keep the main interest rate at a record-low 0.5 percent until the jobless rate falls to 7 percent, which they forecast shouldn’t happen until at least the fourth quarter of 2016. A majority of economists in a Bloomberg survey expect it to reach that target sooner.

The Office for National Statistics is also scheduled to release the jobs data at 9:30 a.m. London time.

The pound has gained 0.7 percent in the past month, according to Bloomberg Correlation-Weighted Indexes, which track 10 developed-nation currencies. The euro was little changed and the dollar slipped 1.6 percent.

U.K. government bonds lost 4.3 percent this year through yesterday, Bloomberg World Bond Indexes show. German securities dropped 2.1 percent and Treasuries declined 3.1 percent.

To contact the reporter on this story: Morgane Lapeyre in London at mlapeyre@bloomberg.net; Lukanyo Mnyanda in Edinburgh at lmnyanda@bloomberg.net

To contact the editor responsible for this story: Nicholas Reynolds at nreynolds2@bloomberg.net

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