U.K. Gilts Fall First Time in Three Days as House Prices Surge

U.K. government bonds fell for the first time in three days after a gauge of house prices rose this month by the most since February, adding to signs the recovery is gaining momentum and damping demand for the safest assets.

Implied interest rates on short-sterling futures rose before data this week that analysts said will show the U.K. economy expanded at a faster pace in the third quarter. Bank of England policy maker Ben Broadbent said central-bank officials will only consider raising interest rates once the recovery is secure. The pound fell against the dollar on speculation data tomorrow will show U.S. employers added the most jobs since April. The U.K. sells 2068 gilts via banks this week.

“Gilts are likely to continue to underperform given the U.K. growth momentum,” said Peter Osler, head of interest-rate strategy at broker Marex Spectron Group Ltd. in London. “I guess you can argue that the interest-rate curve is already ahead of where the Bank of England wants it to be.”

The yield on five-year gilts rose three basis points, or 0.03 percentage point, to 1.56 percent at 4:30 p.m. London time. The 1.25 percent security due July 2018 dropped 0.12, or 1.20 pence per 1,000-pound ($1,615) face amount, to 98.595. The 10-year gilt yield climbed two basis points to 2.74 percent.

Home values climbed 2.8 percent in October after declining 1.5 percent last month, property-website operator Rightmove Plc (RMV) said. Gross domestic product advanced 0.8 percent in the third quarter, according to a Bloomberg News survey before the Office the data on Friday.

Property Demand

Demand for property has been boosted by a government program to help Britons buy a home with a deposit of as little as 5 percent. At the same time, the Bank of England has said it won’t consider raising its benchmark interest rate from 0.5 percent at least until unemployment falls to 7 percent from 7.7 percent currently, a level it doesn’t expect until 2016.

Gilts lost 3 percent this year through Oct. 18, according to Bloomberg World Bond Indexes. Treasuries dropped 2.1 percent and German bonds declined 1.8 percent.

Implied rates on the short-sterling futures contract maturing in March rose one basis point to 0.59 percent.

The pound dropped 0.1 percent to $1.6157 after rising to $1.6225 on Oct. 18, the highest level since Oct. 3. It was little changed at 84.65 pence per euro after strengthening to 84.51 pence.

The dollar advanced against all but one of its 16 major currencies tracked by Bloomberg. U.S. employers added 180,000 workers in September from 169,000 in August, according to the median estimate of analysts surveyed by Bloomberg News, indicating the economy was gaining momentum before the shutdown. The data will be published tomorrow.

Sterling appreciated 5.2 percent in the past six months, the best performer among 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The euro strengthened 3.8 percent, while the dollar weakened 1.5 percent.

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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