U.K. Bonds Rise as U.S. Manufacturing Cools Before BOE Decision

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U.K. government bonds advanced for a third day as investors prepare for a slew of Bank of England data this week that may give clues on the timing of their first interest rate increase since 2007.

Benchmark 10-year gilts erased earlier declines and rallied with Treasuries after a report Monday showed U.S. manufacturing cooled in July, damping the case for the Federal Reserve to increase its own key rate. The U.K. central bank will simultaneously publish economic forecasts, its policy decision, officials’ votes and minutes of the corresponding Monetary Policy Committee meeting, all on Aug. 6.

“It’s pretty much all about Thursday,” said Jason Simpson, a fixed-income strategist at Societe Generale SA in London. “The vote is going to be key. If you were to get more than two people voting for a hike, it suddenly changes the dynamic.”

The benchmark 10-year gilt yield fell two basis points, or 0.02 percentage point, to 1.87 percent at 5 p.m. London time, the lowest since July 8. The yield had dropped 10 basis points over the previous two days. The 5 percent security due March 2025 rose 0.145, or 1.45 pounds per 1,000-pound ($1,560) face amount, to 127.4 on Monday.

Earlier, the bonds fell after an index of U.K. output rose to 51.9 last month from 51.4 in June. Export orders dropped as euro-area demand was limited by the pound’s strength, according to the report. The U.K. Debt Management Office’s plan to auction 3 billion pounds of bonds due in September 2025 on Tuesday.

Pound Pressure

Speculation last month that the BOE will be among the first central banks in developed-market economies to raise interest rates helped push Britain’s currency to the strongest level in about seven years on a trade-weighted basis.

The pound was little changed at 70.25 pence per euro on Monday, after climbing about 10 percent versus the common currency this year. It fell 0.1 percent to $1.5606.

Forward contracts based on the sterling overnight index average, or Sonia, show traders predict rates will rise in May. That’s three months earlier than what was implied as recently as July 10.

Hedge funds and other large speculators turned the least bearish on the pound this year, according to Commodity Futures Trading Commission. Net shorts on the U.K. currency slipped to 9,788 in the week ended July 28, the least since November, CFTC data show.

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