U.K. Gilt Yields Rise to 3-Month High Before This Week’s Sales

U.K. government bonds fell, pushing 10-year yields to the highest level in three months, before the nation sells 6 billion pounds ($9.32 billion) of the securities at auctions this week starting tomorrow

Benchmark gilts declined for the third day, underperforming their German and U.S. equivalents, as the prospect of additional supply reduced demand for existing securities. The pound was little changed against the dollar and euro before a government report tomorrow that economists said will show Britain’s manufacturing production contracted in April for the first time in three months.

“Gilts are lagging both U.S. Treasuries and bunds,” said Henry Skeoch, an inflation-linked strategist at Barclays Plc in London. “The 10-year sector is leading the market down ahead of the auction of a new 2023 gilt tomorrow.”

The yield on the benchmark 10-year gilt rose six basis points, or 0.06 percentage point, to 2.13 percent at 4:26 p.m. London time after climbing to 2.14 percent, the highest level since Feb. 25. The 1.75 percent security due in September 2022 fell 0.5, or 5 pounds per 1,000-pound face amount, to 96.825.

The U.K. will auction 3.75 billion pounds of a new benchmark 2.25 percent bond maturing in September 2023 tomorrow. The nation last sold 10-year securities on April 9 at an average yield of 1.734 percent. The government will sell 2.25 billion pounds of gilts due in June 2032 on June 13.

The extra yield investors demand to hold 10-year gilts instead of similar-maturity German bunds widened two basis points to 54 basis points. The spread of Treasuries over gilts narrowed three basis points to seven basis points.

Gilts Decline

Gilts handed investors a loss of 1.5 percent this year through June 7, according to Bloomberg World Bond Indexes. German bonds dropped 0.9 percent and U.S. Treasuries declined 1.3 percent.

The pound traded at $1.5557 after strengthening 2.4 percent last week, the biggest gain since October 2009. It climbed to $1.5684 on June 6, the highest level since Feb. 13. The U.K. currency was little changed at 84.971 pence per euro.

“There might be some underlying caution about going full steam ahead on sterling,” said Simon Smith, chief economist at FxPro Group Ltd. in London. “Last week was dominated by the dollar and there weren’t very many independent winds behind the pound. We might get a little bit of a reversal of what we saw last week, keeping sterling off the highs it reached then.”

U.K. manufacturing output shrank 0.2 percent in April from the previous month when it expanded 1.1 percent, according to a Bloomberg News survey of economists before the Office for National Statistics releases the figures tomorrow. A separate report will show industrial production stalled, after increasing 0.7 percent in March, another Bloomberg survey showed.

Sterling has appreciated 5.4 percent in the past three months, the best performer of 10 developed-market currencies tracked by Bloomberg Correlation-Weighted Indexes. The dollar gained 0.6 percent and the euro rose 2.5 percent.

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