U.K. Bonds Fall as Survey Shows Greek Backing for Bailout Rising

U.K. government bonds fell for a second day as a survey suggested that Greek support for a “yes” vote in Sunday’s referendum is increasing, reducing the prospect of the nation quitting the euro.

That, in turn, cut demand for the safest sovereign securities, prompting gilts to decline alongside German bunds. The U.K. bonds stayed lower after an industry report showed an improvement in construction last month, even as house prices unexpectedly fell. Gilts also dropped before a U.S. report economists said will show employers added more than 200,000 jobs for the 15th time in 16 months in June, backing the case for the Federal Reserve to increase interest rates this year.

Five-year gilts slid as the Debt Management Office auctioned 3.75 billion pounds ($5.9 billion) of the securities. The pound weakened for the first time in three days versus the euro.

“The rise in gilt yields is far more a function of what’s happening elsewhere,” said Marc Ostwald, a strategist at ADM Investor Services International Ltd. in London. “On the economy, there’s a lot of noise, and it’s really quite dissonant.”

Benchmark 10-year gilt yields rose five basis points, or 0.05 percentage point, to 2.16 percent as of 12:25 p.m. London time, adding to Wednesday’s eight basis-point increase. The 5 percent bond due in March 2025 fell 0.54, or 5.40 pounds per 1,000-pound face amount, to 124.695.

Ten-year gilt yields dropped 11 basis points on June 29 after Greek Prime Minister Alexis Tsipras announced the referendum, the steepest decline since March 10.

Debt Sale

The five-year yield increased four basis points to 1.61 percent. The DMO allotted the 2 percent gilt due in July 2020 at an average yield of 1.609 percent, compared with 1.50 percent at a previous sale on May 14. Investors bid for 1.71 times the amount of securities on offer on Thursday, up from 1.50 times in May.

A GPO poll cited by euro2day.gr suggested the July 5 referendum was now too close to call, with 47 percent of Greeks leaning toward a “yes” vote, or an endorsement of austerity and an international bailout, and 43 percent in the “no” camp. The margin of error in the survey of 1,000 people was 3.1 percentage points.

Before Greece’s banks were closed this week, 57 percent of poll respondents said they’d vote “no” with only 30 percent supporting a “yes” result, the Athens-based Efimerida ton Syntakton newspaper reported July 1.

The pound weakened 0.3 percent to 70.97 pence per euro on Thursday and was little changed versus the dollar at $1.5603.

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