Gilts Gain as China GDP Slowdown Spurs Safety Bid; Pound Weakens

U.K. government bonds advanced for a third day as a report showing China’s economic growth unexpectedly slowed in the first quarter boosted demand for haven assets.

Ten-year gilt yields approached the lowest level since September even as the Debt Management Office prepared to sell 2.25 billion pounds ($3.45 billion) of 30-year bonds on Thursday. The U.K. government will release inflation figures for March tomorrow and the Bank of England is scheduled to publish the minutes of its April 3-4 meeting the following day. The pound weakened for a second day against the dollar.

“The Chinese numbers surprised on the downside and that’s led to a bit of a correction on risk markets, giving support to core government bonds including gilts,” said Nick Stamenkovic, a strategist at broker RIA Capital Markets Ltd. in Edinburgh. “The main driver for gilts this week is going to be the inflation figures” and the central-bank minutes, he said.

The benchmark 10-year gilt yield declined two basis points, or 0.02 percentage point, to 1.71 percent at 4:38 p.m. London time after falling to 1.63 percent on April 8, the lowest since Sept. 5. The 1.75 percent bond due September 2022 rose 0.13, or 1.30 pounds per 1,000-pound face amount, to 100.33.

Chinese gross domestic product rose 7.7 percent from a year earlier, the National Bureau of Statistics said in Beijing today. That compares with the 8 percent median forecast in a Bloomberg News survey, and 7.9 percent in the fourth quarter.

Inflation Rate

The U.K. annual inflation rate held at 2.8 percent in March, according to a Bloomberg News survey before the Office for National Statistics releases the data tomorrow. The rate dropped to 2.2 percent in September, the lowest level since November 2009.

Inflation expectations dropped for a third day, with the 10-year break-even rate, derived from the yield difference between gilts and index-linked securities, falling two basis points to 3.26 percentage points. The rate climbed to 3.39 percentage points on April 11, the most since September 2008.

U.K. home sellers raised asking prices in April for a fourth month amid a shortage of properties for sale, property-website operator Rightmove Plc said in a report today.

Pound Drops

The pound dropped 0.2 percent to $1.5312 and was little changed at 85.46 pence per euro.

“We’ve had some housing data that wasn’t particularly terrible,” said Paul Bednarczyk, a currency strategist in London at 4Cast Ltd., a research company that counts central banks among its subscribers. “The numbers are looking better now and it looks like they will resist the triple-dip recession. I’m cautiously optimistic on sterling at the moment.”

Sterling dropped 4.5 percent this year, according to Bloomberg Correlation-Weighted Indexes, which track 10 developed-nation currencies. The euro advanced 1.2 percent and dollar gained 2.1 percent.

Gilts returned 1.2 percent this year through April 12 according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies. German bonds gained 0.7 percent and Treasuries rose 0.6 percent.

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