Gilt Yields Fall to Eight-Week Low on U.S. Payrolls; Pound Rises

U.K. government bonds rose, pushing 10-year yields to the lowest level since August, after a U.S. report showing American employers added fewer workers than economists forecast boosted demand for safer assets.

Benchmark gilts advanced for the third time in four days as the payroll data fueled speculation the Federal Reserve will maintain asset purchases to help keep borrowing costs low. The U.K. Debt Management Office sold 4.5 billion pounds ($7.28 billion) of bonds maturing in 2068 via banks today. The pound strengthened to a two-week high against the dollar and fell versus the euro.

“Gilts are doing well from the U.K. angle as well as the U.S. payrolls number,” said Sam Hill, a U.K. rates strategist at Royal Bank of Canada in London. “Strong evidence of demand for the syndicated sale this morning has helped gilts to perform very strongly. With that evidence of demand and the news from the U.S., it’s allowed the U.K. to power on.”

The 10-year gilt yield fell 11 basis points, or 0.11 percentage point, to 2.63 percent at 4:37 p.m. London time, the lowest since Aug. 27. The 2.25 percent bond due in September 2023 rose 0.885, or 8.85 pounds per 1,000-pound face amount, to 96.69.

U.S. employers added 148,000 workers in September after adding a revised 193,000 in August, the Labor Department said in Washington. The median forecast of economists surveyed by Bloomberg was for an increase of 180,000. Fed policy makers will wait until March before starting to trim stimulus, a Bloomberg survey showed last week.

Pound Advances

The pound strengthened 0.5 percent to $1.6219 after rising to $1.6228, the highest level since Oct. 3. The U.K. currency weakened 0.3 percent to 84.96 pence per euro.

Sterling also rose versus the dollar after the U.K. statistics office said the nation’s budget deficit excluding temporary support for banks narrowed to 11.1 billion pounds in September from 12.5 billion pounds a year earlier.

Britain’s economy grew 0.8 percent in the third quarter after expanding 0.7 percent in the previous three months, a Bloomberg survey showed before the data is released on Oct. 25.

Bank of England Deputy Governor Charlie Bean said the U.K. recovery was likely to be modest by historic standards.

“There is still a long way to go before we can say the economy is mended,” Bean said at a conference in London. “Until that is the case, monetary policy will need to remain supportive and the guidance we issued in August was intended to make that clear.”

The central bank is scheduled to release the minutes of its Oct. 9-10 policy meeting tomorrow.

Syndicated Sale

The DMO said the size of the 55-year bond sale was increased by 750 million pounds to 4.5 billion pounds. The securities due in July 2068 were sold to yield 3.555 percent, with 94 percent allocated to domestic investors, it said in an e-mailed statement.

“The DMO could have sold more given the strong demand but I guess what held them back was that they have already fulfilled the remit for ultra-long maturities this year,” said Jason Simpson, a fixed-income strategist at Banco Santander SA in London. “The demand was supported by the U.K.’s strong pension investor base and the fact that this bond is relatively cheap on the yield curve.”

Gilts handed investors a loss of 3.2 percent this year through yesterday, according to Bloomberg World Bond Indexes. Treasuries fell 2.2 percent and German bonds slid 1.9 percent.

The pound has strengthened 4.8 percent in the past six months, the best performer among 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The euro rose 4.1 percent, while the dollar fell 1.8 percent.

To contact the reporter on this story: Neal Armstrong in London at narmstrong8@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.