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Gilts Jump as U.K.’s House Prices Decline by Most in 18 Months

Sept. 27 (Bloomberg) -- Gilts rose as house prices in the U.K. fell the most in 18 months in September, bolstering the case for the Bank of England to resume asset purchases.

The advance pushed the yield on the 10-year gilt down as much as 8 basis points after it rose the most in almost a month at the end of last week. Ten-year yields ended last week lower on speculation the BOE will resume quantitative easing after some policy makers said in the minutes of its Sept. 9 meeting that the economy may need more stimulus.

“Weaker data doesn’t just mean weaker data; it also means a greater chance of QE,” said Andy Chaytor, a rates strategist at Royal Bank of Scotland Plc in London. “This period of higher volatility is likely to continue.”

U.K. 10-year yields fell 8 basis points, or 0.08 percentage point, to 2.97 percent at 3:43 p.m. in London. The 4.75 percent security due in March 2020 gained 0.665, or 6.65 pounds per 1,000-pound ($1,581) face amount, to 114.545. Two-year yields dropped 5 basis points to 0.65 percent.

The average cost of a home in Britain fell 0.4 percent from the previous month to 157,600 pounds ($249,000), London-based Hometrack Ltd. said. It was the third consecutive monthly drop and the biggest since March 2009. Housing demand fell the most since January 2009.

Gilts have returned 2.7 percent this quarter, compared with 1.7 percent for German government bonds and 2.2 percent for U.S. Treasuries, according to indexes compiled by Bank of America Merrill Lynch. Gilts lost 1.6 percent this month, as an index of global sovereigns fell 0.7 percent, headed for its first losing month since December.

Outlook for Pound

The pound was little changed at $1.5838, compared with $1.5826 on Sept. 24, and appreciated 0.2 percent to 85.11 pence per euro.

Sterling may weaken because the BOE’s Monetary Policy Committee is poised to expand asset purchases and Britain’s “woebegone economy” faces economic challenges, according to High Frequency Economics.

“The MPC is getting ready to reboot its Asset Purchase Facility as soon as the next MPC meeting,” Carl B. Weinberg, chief economist at the Valhalla, New York-based research firm, wrote in a note today. “If it does, the pound will tumble on all cross rates.”

To contact the reporters on this story: Matthew Brown in London at mbrown42@bloomberg.net

To contact the editor responsible for this story: Daniel Tilles at dtilles@bloomberg.net

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