Gilts Decline in Longest Streak for Six Years on Recovery Bets

Gilts declined for a seventh week, the longest streak in more than six years, as reports showed U.K. manufacturing and services industries expanded last month, adding to evidence of accelerating growth.

Sterling rose for the first time in three weeks against the dollar as a report showed the U.S. economy added fewer jobs in August than economists projected. It also advanced against the euro. Ten-year yields climbed above 3 percent for the first time since July 2011 after the Bank of England’s Monetary Policy Committee left its stimulus program unchanged and kept its benchmark rate at a record low.

“An increase in yields appears to be justified by the recent domestic data and events,” said Peter Osler, head of rates strategy at broker Marex Spectron Group Ltd. in London. “The pace of the recovery is ruling out further bond purchases under the quantitative-easing program for now, but QE might remain a vocal topic at the MPC just to discourage selling, regardless of the strength in economic data.”

The 10-year gilt yield climbed 17 basis points from last week to 2.94 percent at 5 p.m. London time yesterday. It rose to 3.01 percent on Sept. 5, the highest since July 27, 2011. The 2.25 percent security due September 2023 dropped 1.38, or 13.80 pounds per 1,000-pound ($1,563) face amount, to 94.08. The seven consecutive weeks of decline marked the longest run since February 2007.

Services, Manufacturing

U.K. services expanded at the fastest pace since 2006 while manufacturing output rose to the highest level in 2 1/2 years, gauges based on surveys of purchasing managers showed.

The MPC, meeting for the first time since introducing forward guidance on interest rates last month, held its asset-purchase target at 375 billion pounds on Sept. 5 and kept its official interest rate at 0.5 percent.

Under the Bank of England’s guidance policy, the MPC plans to keep its key interest rate on hold as long as unemployment exceeds 7 percent. The jobless rate was at 7.8 percent, according to data released on Aug. 14.

Sterling rose 0.8 percent against the dollar in the week to $1.5631. It appreciated 1.3 percent to 84.23 pence per euro.

The pound strengthened 6.6 percent over the past six months, the best performer among 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The euro gained 3.7 percent and the dollar climbed 2 percent.

The U.S. Labor Department reported yesterday that the economy added 169,000 jobs last month compared with a revised 104,000 rise in July that was smaller than initially estimated. The median forecast of economists surveyed by Bloomberg called for an August increase of 180,000.

The U.K. unemployment rate stayed at 7.8 percent in the three months through July, according to a survey of economists by Bloomberg News before the data is released next week.

U.K. government bonds lost 5.1 percent this year through Sept. 5, according to Bloomberg World Bond Indexes. German securities dropped 3.1 percent and Treasuries declined 4.3 percent, the indexes show.

To contact the reporter on this story: Anchalee Worrachate in London at aworrachate@bloomberg.net

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

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