U.K. Bonds Rise 5th Week on Emerging-Market Selloff

U.K. 10-year bonds advanced for a fifth week, pushing yields to a 12-week low, as a selloff in emerging-market assets boosted demand for the safety of British government securities.

Gilts handed investors their biggest monthly return since July 2012 (BRIT) as an index of 20 developing-economy currencies compiled by Bloomberg dropped 2.9 percent. The pound tumbled against the dollar for the first month since October after Bank of England Governor Mark Carney reiterated that the central bank is not ready to raise interest rates from a record-low 0.5 percent. The economy grew 0.7 percent in the fourth quarter, completing the U.K.’s fastest annual expansion since 2007.

“Gilts have been remarkably resilient despite the strong data in the U.K. and that’s because of the renewed tensions we’ve seen in emerging markets,” said Nick Stamenkovic, a fixed-income strategist at broker RIA Capital Markets Ltd. in Edinburgh. Bank of England officials “are in no hurry to raise interest rates, so on the margin that might support gilts as well, but the driving force is risk assets.”

The 10-year gilt yield fell seven basis points, or 0.07 percentage point, in the week to 2.71 percent at 5:07 p.m. London time yesterday when it declined to 2.69 percent, the least since Nov. 8. The 2.25 percent bond maturing in September 2023 climbed 0.545, or 5.45 pounds per 1,000-pound ($1,646) face amount, to 96.165.

Rate Cuts

The ruble fell for the 14th time in 15 days yesterday even after the Russian central bank took steps to keep the currency within its target corridor amid the selloff in emerging markets. Central banks from South Africa and Turkey to Argentina have raised interest rates this week to prop up currencies that tumbled on concern cuts to Federal Reserve stimulus will hamper growth in developing economies.

U.K. gilts returned 1.8 percent this year through Jan. 30, according to Bloomberg World Bond Indexes, while emerging-market high-yield sovereign bonds handed investors a 3.3 percent loss, according to a separate gauge. German bonds gained 1.7 percent and Treasuries rose 1.6 percent.

The pound slipped 0.2 percent in the week to $1.6449, having dropped 0.7 percent in January. Sterling gained 1.1 percent to 82.05 pence per euro. It appreciated to 81.68 pence on Jan. 22, the strongest level since Jan. 10, 2013.

Sterling gained 10 percent in the past year, the best performer among 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes, as improving economic data fueled speculation that the central bank would have to raise rates sooner than it predicted. The euro strengthened 5.1 percent and the dollar added 5.7 percent.

The U.K. jobless rate slid to 7.1 percent in the three months through November, nearing the 7 percent threshold for the Bank of England to consider raising rates that Carney unveiled in August. The central bank still isn’t ready to move from its policy of low rates, he said in Edinburgh on Jan. 29.

Bank of England policy makers will hold a two-day meeting ending Feb. 6 and publish new economic forecasts in its quarterly Inflation Report on Feb. 12.

To contact the reporter on this story: Lucy Meakin in London at lmeakin1@bloomberg.net

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