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Gilts Decline for First Time in Five Days as Construction Jumps

Sterling gained 9.7 percent in the past year, the best performer among 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes.  Photographer: Chris Ratcliffe/Bloomberg
Sterling gained 9.7 percent in the past year, the best performer among 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. Photographer: Chris Ratcliffe/Bloomberg

Feb. 4 (Bloomberg) -- U.K. government bonds declined for the first time in five days after a report showed a gauge of U.K. construction output unexpectedly accelerated last month.

Benchmark 10-year yields climbed from the lowest in almost three months as most emerging-market currencies rose and European stocks pared losses, damping demand for the safest assets. The Debt Management Office sold 4 billion pounds ($6.5 billion) of gilts due in July 2019 today. Bank of England policy makers start this month’s two-day meeting tomorrow.

“Core government bonds have come a long way and there has been no more negative data today,” said Nick Stamenkovic, a fixed-income strategist at broker RIA Capital Markets Ltd. in Edinburgh. “On a medium-term basis we think gilts are poor value. The U.K. economy is pretty robust.”

The yield on 10-year gilts rose one basis point, or 0.01 percentage point, to 2.70 percent at 4:58 p.m. London time after dropping to 2.68 percent, the lowest level since Nov. 8. The 2.25 percent bond due in September 2023 fell 0.1, or 1 pound per 1,000-pound face amount, to 96.21.

The Stoxx Europe 600 Index of European equities fell 0.2 percent after dropping as much as 0.8 percent, while the Standard & Poor’s 500 Index rose 0.8 percent.

A gauge of U.K. construction output, based on a survey of purchasing managers, climbed to 64.6 last month from 62.1 in December, Markit Economics said today in London. The median estimate in a Bloomberg News survey of analysts was for a reading of 61.5. A figure more than 50 indicates growth.

U.K. Sale

The U.K. sold the 2019 securities at 1.91 percent, down from an average yield of 1.994 percent when it sold the gilts on Dec. 12.

The rate on the benchmark five-year gilt due in July 2018 was at 1.60 percent today.

U.K. gilts returned 2.4 percent this year through yesterday, according to Bloomberg World Bond Indexes. Treasuries earned 2.2 percent and German securities gained 2.1 percent.

The pound was little changed versus the dollar at $1.6306 after earlier touching $1.6257, the lowest level since Dec. 17. The U.K. currency appreciated 0.1 percent to 82.85 pence per euro.

Sterling gained 9.3 percent in the past year, the best performer among 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes, as Britain’s economic recovery gathered pace. The euro and the dollar rose 5.3 percent.

To contact the reporter on this story: Neal Armstrong in London at narmstrong8@bloomberg.net

To contact the editor responsible for this story: Paul Dobson at pdobson2@bloomberg.net

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