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Gilts Rise 2nd Week as Data Show Recovery Stalling; Pound Gains

U.K. gilts advanced for a second week as economic reports added to evidence the recovery is stalling and Bank of England Governor Mervyn King signaled he was open to more monetary stimulus if needed.

Ten-year bonds pared their first quarterly loss in a year after data yesterday showed consumer confidence unexpectedly worsened this month. The pound climbed for a third week against the dollar and reached a four-month high as European finance ministers met in Copenhagen to discuss boosting the region’s bailout funds.

“For now, gilts are well underpinned because of the weak U.K. economy and uncertainty about Europe and generally poor risk appetite,” said Nick Stamenkovic, a fixed-income strategist at RIA Capital Markets Ltd. in Edinburgh.

The yield on the 10-year gilt dropped seven basis points, or 0.07 percentage point, this week to 2.2 percent at 4:33 p.m. London time yesterday, trimming this year’s increase to 23 basis points. The 4 percent bond due in March 2022 gained 0.665, or 6.65 pounds per 1,000-pound ($1,599) face amount, to 115.95

Gilts have handed investors a 4.4 percent return in the past six months through March 29, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies. The securities have been boosted as investors sought a haven from the European debt crisis.

Sentiment Drops

An index of U.K. consumer sentiment fell to minus 31 from minus 29 in February, GfK NOP Ltd. said yesterday. Economists surveyed by Bloomberg forecast no change. Nationwide Building Society said March 29 that U.K. house prices dropped in March. The economy shrank more than initially estimated in the fourth quarter, the Office for National Statistics said March 28.

Bank of England officials will maintain the size of their bond-buying program next week, economists predict. The nine-member Monetary Policy Committee will hold the target at 325 billion pounds, according to all 39 forecasts in a Bloomberg News survey. They will also leave their key interest rate at a record low of 0.5 percent, a separate survey showed.

“I don’t know whether it’s going to be required or not,” King said March 27 referring to the prospects of the central bank expanding its asset-purchase program.

The pound strengthened 0.8 percent this week to $1.5991 after rising to $1.6037, the highest level since Nov. 14. The currency stayed above its 200-day moving average of $1.5851. The U.K. currency gained 0.3 percent over the five days to 83.35 pence per euro.

Sterling has appreciated 1.4 percent over the past month, the best performer of the 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes.

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