U.K. 10-Year Gilts Advance on Demand for Safety; Pound Climbs

U.K. government bonds advanced, with 10-year yields falling to the lowest level since September, as a report showing U.S. payrolls grew by the smallest in nine months in March boosted demand for safer assets.

Benchmark 10-year gilt yields dropped for a fourth week, the longest run since November, after data showed the euro-region economy is struggling to grow and amid concern financial turmoil in Cyprus could reignite the region’s sovereign-debt crisis. The Bank of England this week maintained its asset-purchase target at 375 billion pounds ($575 billion) and kept the benchmark interest rate at a record-low 0.5 percent. The pound strengthened to a six-week high against the dollar.

“Gilts have been driven by external factors, as domestic issues take a back seat,” said Nick Stamenkovic, a strategist at RIA Capital Markets Ltd. in Edinburgh. “Investors are fretting about the recessionary conditions in the euro-area economy and there are renewed concerns about the U.S., triggered by a weak employment report. Gilts should remain well underpinned near term.”

The 10-year gilt yield fell 14 basis points, or 0.14 percentage point, to 1.63 percent as of 5 p.m. London time yesterday. That’s the lowest rate since Sept. 5. The 1.75 percent bond due September 2022 gained 1.185, or 11.85 pounds per 1,000-pound face amount, to 101.03.

U.S. payrolls grew by 88,000 workers last month after a revised 268,000 gain in February, Labor Department figures showed yesterday in Washington. The median forecast of 87 economists surveyed by Bloomberg projected an advance of 190,000.

Pound Rallies

The pound rallied from a two-week low against the dollar after an industry report showed Britain’s services output expanded more than forecast last month.

A gauge of U.K. services output based on a survey of purchasing managers rose to 52.4 last month from 51.8 in February, Markit Economics and the Chartered Institute of Purchasing and Supply said in London on April 4. Economists surveyed by Bloomberg News forecast a reading of 51.5. A similar index for the euro region fell to 46.4, below the 50 level that indicates expansion for a 14th month.

The pound rose 0.9 percent in the week to $1.5336. It climbed to $1.5363 yesterday, the most since Feb. 20. It dropped to $1.5034 on April 4, the weakest since March 20. Sterling depreciated 0.7 percent to 84.93 pence per euro.

The pound has declined 4.1 percent this year, according to Bloomberg Correlation-Weighted Indexes, which track 10 developed-nation currencies. The dollar climbed 2.3 percent and the euro gained 0.9 percent.

Gilt Sales

The Debt Management Office is scheduled to sell 3.5 billion pounds of 10-year gilts on April 9, before offering 1.6 billion pounds of inflation-linked debt due in 2024 two days later.

The National Institute of Economic and Social Research, whose clients include the Bank of England, will release its estimate for the U.K.’s growth in the three months through March on April 9.

Gilts returned 1.4 percent this year through April 4, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies. German bunds gained 0.7 percent and Treasuries rose 0.4 percent.

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