U.K. 10-Year Gilts Rise for Fourth Day as Fed Bets Spur Demand

U.K. government bonds rose for a fourth day, the longest streak of gains in a month, as speculation the Federal Reserve will maintain stimulus spurred demand for fixed-income assets.

Ten-year gilt yields slid to the lowest level since August after Bank of England Governor Mark Carney said central-bank officials won’t tighten monetary policy until the recovery gains traction. The pound headed for its biggest monthly decline versus the euro since January as economists said data this week will show U.K. house-price growth and manufacturing expansion slowed in October.

“Gilts are trading rather well,” said John Wraith, a fixed-income strategist at Bank of America Corp. in London. “As long as the Fed is printing money then there’s a tendency for prices to just keep pushing higher, in line with all the other core markets.”

Benchmark 10-year gilt yields slid six basis points, or 0.06 percentage point, to 2.54 percent at 4:30 p.m. London time, the lowest since Aug. 13. The 2.25 percent bond maturing in September 2023 rose 0.48, or 4.80 pounds per 1,000-pound ($1,607) face amount, to 97.455. Two-year gilt yields dropped three basis points to 0.39 percent.

The Federal Open Market Committee will maintain its $85 billion in monthly bond buying when it concludes its two-day policy meeting today, according to a Bloomberg survey. The U.S. central bank last month refrained from reducing the stimulus to await further evidence of an economic recovery. Policy makers will slow the pace of buying by $15 billion at their March meeting, a separate survey on Oct. 17-18 showed.

Fewer Workers

Gilts stayed higher as U.S. yields dropped toward a three-month low after ADP Research Institute said U.S. companies added 130,000 workers last month, the fewest since April. Treasury 10-year yields fell three basis points to 2.48 percent after sliding to 2.47 percent on Oct. 23, the lowest since July 22.

U.K. gilts returned 1.2 percent in the month through yesterday, according to Bloomberg World Bond Indexes, as European government bonds rallied. Treasuries advanced 0.7 percent and German securities returned 0.1 percent.

“We’re not going to look to tighten monetary policy until we see real traction and momentum in this recovery that has been sustained for some time,” Carney said in an interview with Cardiff, Wales-based newspaper Western Mail. “Most of the growth in momentum is coming from the household sector and there’s a pick-up in the housing market from quite low levels.”

Pound Weakens

The pound was little changed at 85.66 pence per euro after depreciating to 85.85 pence yesterday, the weakest since Aug. 29. It has lost 2.5 percent this month versus the common currency. Sterling gained 0.2 percent to $1.6075 after rising to $1.6257 on Oct. 23, the highest level since Oct. 1.

A gauge of U.K. home prices rose 0.7 percent after increasing 0.9 percent in September, according to a Bloomberg survey before the report from the Nationwide Building Society tomorrow. An index based on a survey of purchasing managers in the manufacturing industry fell to 56.4 from 56.7, a separate survey showed before London-based Markit Economics releases the data on Friday. A reading above 50 indicates expansion.

“The pound remains overextended” versus the dollar, Morgan Stanley analysts led by Hans Redeker, the bank’s London-based head of foreign-exchange strategy wrote in a note to clients today. “We suggest caution with Friday’s U.K. PMI, which has generated strong positive signals recently, but now has the potential to deliver a negative surprise.”

The pound gained 3.3 percent in the past three months, the best performer among 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The euro rose 1.5 percent, while the dollar fell 2.7 percent.

Gilt Futures

The price on gilt futures climbed to the highest level since August. The contract expiring in December rose 0.5 percent to 111.99 after reaching 112.01, the most since Aug. 5.

The contract will meet resistance at 112.10, the 38.2 percent retracement of its decline from May to September, Credit Suisse Group AG technical analysts including David Sneddon in London wrote in a note to clients, citing Fibonacci analysis.

“Should strength directly extend, we would target 113.45,” the analysts wrote. The gilt contract last reached that level on Aug. 1, according to data compiled by Bloomberg.

In technical analysis, resistance refers to an area on a price chart where sell orders may be clustered, and a break indicates an asset may rise to the next level. Fibonacci analysis is based on the theory that prices rise or fall by certain percentages after reaching a high or low.

To contact the reporter on this story: Emma Charlton in London at echarlton1@bloomberg.net

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

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