U.K. government bonds fell, with two-year yields rising the most in two weeks, as an industry report showing British house prices increased in January reduced demand for safer assets.
Ten-year bond yields climbed toward the highest level in a week before the Debt Management Office auctions 1.75 billion pounds ($2.77 billion) of the securities tomorrow. Gilts also dropped as European stocks gained, boosting the appeal of higher-yielding assets. The pound fell for a seventh day versus the dollar before the Bank of England releases the minutes of its January meeting this week and the government reports economic growth for the fourth quarter.
“The overall outlook in the U.K. is for rather more inflation than in many other countries,” said Marc Ostwald, a rates strategist at Monument Securities Ltd. in London. “Gilt supply tomorrow shouldn’t prove too much of a problem. The market is extraordinarily thin today and overall I think people will want to keep their powder dry for the data and events we have in the U.K. this week.”
The two-year gilt yield climbed four basis points, or 0.04 percentage point, to 0.42 percent at 4:02 p.m. London time, the most since Jan. 3. The 5 percent bond maturing in September 2014 fell 0.075, or 75 pence per 1,000-pound face amount, to 107.40.
The benchmark 10-year yield increased five basis points to 2.06 percent after advancing to 2.07 percent on Jan. 18, the highest level since Jan. 11.
Rightmove Plc said British home prices nationally rose 0.2 percent this month after dropping 3.3 percent in December. Asking prices in London jumped 9.7 percent from a year earlier, the biggest annual increase since February 2010.
The difference in yield between 10-year gilts and index-linked securities, a measure of inflation known as the break-even rate, widened as much as two basis points to 3.06 percent.
The Stoxx Europe 600 Index of regional shares rose 0.2 percent and the FTSE 100 Index gained 0.4 percent.
Gilts handed investors a loss of 1.4 percent this month through Jan. 18, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies. German bonds dropped 1.1 percent and Treasuries fell 0.3 percent.
The pound weakened 0.2 percent to $1.5839 after dropping to $1.5832, the lowest since Nov. 15. The seven-day losing streak is the longest since November 2010. Sterling fell 0.2 percent to 84.06 pence per euro after depreciating to 84.09 pence, the weakest since March 13.
The pound’s close below its 200-day moving average last week “suggests there is further downside,” said Melinda Burgess, a currency strategist at Royal Bank of Scotland Plc in London. Sterling last closed beneath the average on Nov. 14, data compiled by Bloomberg show.
RBS forecasts the currency will decline to $1.5630 by the end of March and $1.5260 by year-end, Burgess said.
The Bank of England will release the minutes of its January meeting on Jan. 23. U.K. gross domestic product dropped 0.1 percent from the third quarter, according to a Bloomberg News survey of economists before the Office for National Statistics issues the data on Jan. 25.
The pound weakened 2.3 percent this year, the second-worst performance after the yen, according to Bloomberg Correlation-Weighted Indexes which track 10 developed-market currencies. The euro gained 1.6 percent and the dollar rose 0.6 percent.