Gilt Yields Rise Most in 5 Weeks on ECB Outlook, U.S. Payrolls

U.K. government bonds fell, with 10-year yields climbing the most in five weeks, as speculation the European Central Bank will introduce measures to contain the region’s debt crisis damped demand for safer assets.

Benchmark gilts erased a weekly gain after a U.S. report showed employers hired more workers than forecast in July, easing concern the world’s biggest economy is slowing. The pound fell to a three-week low against the euro after members of German Chancellor Angela Merkel’s coalition signaled they won’t stand in the way of ECB President Mario Draghi’s plan to buy government bonds to help stem the fiscal turmoil, boosting the bonds of so-called peripheral nations.

“Yesterday’s sell-off in Italian and Spanish bonds is reversing,” said Alan Clarke, a London-based economist at Scotiabank Europe Plc. “This is risk-on and so people have been selling the U.K.”

The yield on the 10-year gilt climbed 10 basis points, or 0.1 percentage point, to 1.54 percent at 4:03 p.m. London time after rising as much as 12 basis points, the most since June 29. The 4 percent bond due in March 2022 declined 1.02, or 10.20 pounds per 1,000-pound face amount, to 121.85. The yield increased one basis point this week.

The ECB’s intention to buy government bonds of troubled euro states is “a wise middle way” to solve the debt crisis, Elmar Brok, a European Parliament lawmaker and executive-committee member of Merkel’s Christian Democratic Union party, told Deutschlandfunk radio today.

‘Severe Malfunctioning’

Gilts extended declines after the U.S. Labor Department said employers hired 163,000 workers last month, up from a revised 64,000 in June. The unemployment rate, derived from a separate survey, increased to 8.3 percent from 8.2 percent.

U.K. government bonds have returned 4.5 percent this year, indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies showed, as the region’s debt crisis underpinned demand for haven assets. German bunds also earned 4.5 percent and U.S. Treasuries gained 2.8 percent.

The pound weakened 0.7 percent to 79.09 pence per euro, extending this week’s decline to 1.1 percent. The U.K. currency rose 0.6 percent to $1.5605.

Sterling also weakened against most of its major counterparts after an industry report showed U.K. service industries unexpectedly slowed in July.

A gauge of services, which accounts for about three quarters of the economy, fell to 51 from 51.3 in June, Markit Economics and the Chartered Institute of Purchasing and Supply said. A reading above 50 indicates growth.

‘Weak’ Data

“Part of the story for sterling is the weak U.K. data we have had of late,” said Valentin Marinov, head of G-10 currency strategy at Citigroup Inc. in London. There are “growing expectations for the Bank of England’s growth and inflation forecasts to be revised down” in next week’s Inflation Report, and that “could add to the headwinds for the pound,” he said.

The U.K. currency has dropped 1.8 percent against a basket of nine developed market peers in the past three months as the nation’s economy worsened, according to Bloomberg Correlation-Weighted Indexes. The dollar rose 2.2 percent and the euro weakened 4.8 percent.

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