Gilts Snap Two-Day Gain Before Osborne Budget as Deficit Doubles

U.K. five-year notes snapped a two-day advance before Chancellor of the Exchequer George Osborne presents next year’s budget and as a report showed the deficit almost doubled last month as taxes fell and spending surged.

Short-dated gilts stayed lower after the Bank of England said two policymakers voted for more stimulus this month. Net borrowing excluding support for banks climbed to 15.2 billion pounds ($24.1 billion), the highest for any February on record, from 8.9 billion pounds a year earlier, the Office for National Statistics said in London today. The Treasury may sell the second-largest amount of gilts on record this year, analysts said before Osborne’s speech at about 12:30 p.m.

“With the budget around the corner, it’s not pleasant viewing” for bond investors, said Orlando Green, a fixed-income strategist at Credit Agricole Corporate & Investment Bank in London. “Gilt investors need to see that the government is focused on its deficit-cutting targets.”

The yield on the five-year gilt increased two basis points to 1.23 percent at 11:31 a.m. London time, while the two-year note yield also rose two basis points, to 0.49 percent. The 1.75 percent security due January 2017 fell 0.08, or 80 pence per 1,000-pound face amount, to 102.46. The 10-year yield was little changed at 2.43 percent.

BOE Minutes

Adam Posen and David Miles wanted to increase the bank’s target for bond purchases by 25 billion pounds to 350 billion pounds, while the rest of the Monetary Policy Committee favored waiting and monitoring the “substantial risks” to the inflation outlook, minutes of the March 7-8 meeting released today in London showed.

The pound was little changed at $1.5868, after gaining as much as 0.4 percent to $1.5923. It was 0.1 percent weaker versus the euro at 83.47 pence.

“The debt figures took the wind out of the sails a bit” for the pound, said Neil Mellor, a currency strategist at Bank of New York Mellon Corp. in London.

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