U.K. Bonds Climb Second Day on Fed Minutes Before BOE Sets Rates

U.K. government bonds rose, sending 10-year yields to a five-month low, after the Federal Reserve damped expectations its borrowing costs would rise soon and before the Bank of England announces its latest policy decision.

The pound jumped to a seven-week high against the dollar after minutes of the Federal Open Market Committee’s March 18-19 meeting showed some policy makers expressed concern that rate forecasts “could be misconstrued as indicating a move by the committee to a less accommodative” stance. Gilts were also supported after China reported an unexpected drop in imports and exports. All 50 economists in a Bloomberg News survey predict the Bank of England will keep its key rate at 0.5 percent today.

“What is leading the market without a shadow of a doubt is the FOMC minutes,” said Marc Ostwald, a strategist at Monument Securities Ltd. in London. “We’re also being led higher by the very distorted Chinese data, which was nonetheless very weak. It’s all quite bond-positive. I can’t see the BOE doing anything in the near term so that’s a non-event.”

The 10-year gilt yield fell six basis points, or 0.06 percentage point, to 2.63 percent at 11:05 a.m. London time after reaching 2.62 percent, the lowest since Nov. 1. The 2.25 percent security due September 2023 rose 0.51, or 5.10 pounds per 1,000-pound ($1,678) face amount, to 96.875.

Yield Forecasts

Ten-year yields may slip to 2.5 percent, Monument’s Ostwald said. The median weighted average of forecasts compiled by Bloomberg is for an increase to 3.06 percent by the end of this quarter.

Chinese data today showed overseas shipments declined 6.6 percent from a year earlier. Imports fell 11.3 percent, leaving a trade surplus of $7.71 billion.

The pound was little changed at $1.6784 after rising to $1.6820, the strongest since Feb. 17. It climbed 1.3 percent over the preceding three days. The U.K. currency weakened for a second day against the euro, depreciating 0.2 percent to 82.66 pence.

Sterling has risen 10 percent in the past 12 months, the best performer among 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The euro gained 6.5 percent, while the dollar weakened 0.3 percent.

Gilts returned 2.7 percent this year through yesterday, according to Bloomberg World Bond Indexes. German bonds gained 2.4 percent and Treasuries rose 2 percent.

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

To contact the editors responsible for this story: Paul Dobson at pdobson2@bloomberg.net Mark McCord, Keith Jenkins

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