Jan. 5 (Bloomberg) -- U.K. government bonds rose as an index showed construction shrank in December for the first time in 10 months and a survey showed British companies were less optimistic about their trading prospects.
The 2-year note yield declined as the gauge, based on a survey of purchasing managers at building companies, fell to 49.1 from 51.8 in November, Markit Economics Ltd. and the Chartered Institute of Purchasing and Supply said. Economists had forecast a drop to 51.0. A reading below 50 indicates contraction. U.K. businesses saying sales, orders and profits will rise in the next six months exceeded those predicting falls by 12 percentage points, compared with 18 points in a June survey, Lloyds TSB Commercial said.
“The purchasing managers’ index for construction was a bit lower than expected and we had a pretty nasty sell-off in gilts yesterday which took us toward some key levels, up towards 3.50 percent in 10-year yields,” said Andy Chaytor, a rates strategist at Royal Bank of Scotland Plc in London. “It shouldn’t be too surprising to markets that construction didn’t do too well in a month of constant snow and ice, which aren’t the ideal conditions for building things.”
Benchmark 10-year yields fell three basis points to 3.43 percent at 10:17 a.m. in London. Two-year yields dropped two basis points to 1.11 percent.
The pound was little changed against the dollar at $1.5600 after earlier weakening to $1.5537. It was 0.5 percent stronger against the euro at 84.97 pence per euro.
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