U.K. Gilts Advance for Fourth Day Amid Signs of Global Slowdown

Britain’s 10-year gilts rose for a fourth day, pushing yields to the lowest level in a week, as reports showing economies from China to the U.K. may be slowing underpinned demand for the safest assets.

Gilts advanced after data showed the euro region’s services and manufacturing output fell to a 39-month low in September and a gauge of U.K. retail sales dropped last month for the first time since April. The Debt Management Office sold 4.5 billion pounds ($7.3 billion) of gilts due in five years. The pound gained the most in six weeks against the euro.

“The market’s attention has again turned to the underlying health of the global economy,” said Brian Barry, an analyst at Investec Bank Plc in London. “As such, safe-haven assets, including gilts and bunds, are outperforming relative to riskier assets.”

The 10-year gilt yield fell five basis points, or 0.05 percentage point, to 1.80 percent at 4:45 p.m. London time, after reaching 1.78 percent, the lowest since Sept. 12. The 1.75 percent bond due in September 2022 gained 0.43, or 4.30 pounds per 1,000-pound face amount, to 99.58.

The yield on German 10-year bunds slid five basis points to 1.57 percent. The FTSE 100 Index declined for the third time in four days, losing 0.6 percent.

Retail Sales

U.K. retail sales including auto fuel dropped 0.2 percent from July, the Office for National Statistics said today in London. The median forecast of 22 economists in a Bloomberg News survey was for a 0.3 percent decline.

A preliminary index of China’s manufacturing was 47.8 for September, versus 47.6 last month, according to HSBC Holdings Plc and Markit Economics. A reading less than 50 indicates contraction. An index of French manufacturing was 42.6 this month, down from 46 in August, separate data showed.

Five-year gilts also rose for a fourth day, with the yield dropping three basis points to 0.79 percent. The U.K. debt office sold bonds maturing in September 2017 at an average yield of 0.802 percent, down from 0.942 percent at a previous auction of the same securities on July 4.

The U.K. 30-year break-even rate, a gauge of investor expectations for inflation over the next three decades, posted its biggest three-day slide since January. It has fallen 14 basis points in the period to 2.88 percentage points.

Gilts have handed investors a return of 2.3 percent this year, according to indexes compiled by Bank of America Merrill Lynch. Index-linked securities made a 3.8 percent loss.

Composite Index

The pound strengthened against the euro as an industry report showed a composite index based on a survey of purchasing managers in services and manufacturing in the 17-nation euro area dropped to 45.9 in September from 46.3 a month earlier. That’s the lowest since June 2009.

Minutes published yesterday of the Bank of England’s September meeting showed policy makers voted unanimously to maintain their bond-purchase target at 375 billion pounds.

The nine-member Monetary Policy Committee, led by Governor Mervyn King, last expanded so-called quantitative easing in July and is currently buying 50 billion pounds of gilts in a program due to run until November. All members also agreed to hold the benchmark interest rate at a record-low 0.5 percent.

Sterling gained 0.6 percent to 79.93 pence per euro, after rising as much as 0.7 percent to 79.87 pence, the biggest daily increase since Aug. 8 and the strongest level since Sept. 12. The pound fell 0.1 percent to $1.6199, after touching $1.6164, the weakest level since Sept. 14.

Investors should sell the pound against the dollar, betting the currency will decline to $1.5780, Steven Barrow, head of Group of 10 research at Standard Bank Plc in London, said in an e-mailed report. He recommended exiting the trade should sterling climb to $1.6480.

The pound has appreciated 0.7 percent in the past month, according to Bloomberg Correlation-Weighted Indexes, which track a basket of 10 developed-market currencies. The dollar fell 2.6 percent and the euro rose 2.8 percent.

Before it's here, it's on the Bloomberg Terminal. LEARN MORE