Gilts Fall as House-Price Gain Damps Bets on BOE Debt Purchases
U.K. government bonds fell for the first time in four days after an industry report showed home sellers raised asking prices, weakening the case for additional central-bank debt purchases to keep borrowing costs low.
The benchmark 10-year yield climbed from the lowest level in a week as economists said a government report tomorrow will show annual inflation accelerated last month, damping the attraction of fixed-income securities. Government bonds also declined as Asian and European stocks advanced.
“There’s various signs around that sentiment is picking up in the U.K,” said John Wraith, a fixed-income strategist at Bank of America Merrill Lynch in London. “We’re seeing domestically some of the best numbers that we’ve seen for some time. I can see why at least part of the move in terms of the spike higher in yields over the past month has happened.”
The 10-year gilt yield climbed two basis points, or 0.02 percentage point, to 2.08 percent at 9:32 a.m. London time after dropping to 2.05 percent on June 14, matching the lowest since June 7. The 1.75 percent bond due in September 2022 fell 0.165, or 1.65 pounds per 1,000-pound ($1,571) face amount, to 97.235. The yield has increased 20 basis points in the past month.
Prices sought by British homeowners rose 1.2 percent in June, pushing average values above 250,000 pounds for the first time, property-website operator Rightmove said. Annual consumer-price inflation quickened to 2.6 in May from 2.4 percent the previous month, according to a Bloomberg survey before the Office for National Statistics releases the data tomorrow.
The pound was little changed at $1.5716 after advancing to $1.5738 on June 13, the strongest since Feb. 11. The U.K. currency gained 0.1 percent to 84.89 pence per euro.
Sterling has gained 4.4 percent in the past three months, the best performer of 10 developed-market currencies tracked by Bloomberg Correlation-Weighted Indexes. The euro appreciated 2.1 percent and the dollar fell 0.1 percent.
Gilts handed investors a loss of 1.3 percent this year through June 14, according to Bloomberg World Bond Indexes. German bonds dropped 0.7 percent and Treasuries declined 1 percent, the indexes show.
To contact the reporter on this story: Lukanyo Mnyanda in Edinburgh at firstname.lastname@example.org