Gilts Advance as BOE Minutes Show Some Support for U.K. Stimulus

U.K. government bonds rose for the first time in three days as the minutes of the Bank of England’s most recent policy meeting showed some officials said more monetary stimulus was justified.

The gains pushed 10-year yields down from the highest in a week as investors awaited a press conference from Federal Reserve Chairman Ben S. Bernanke, who may signal when the U.S. central bank will slow its bond-buying program. The nine-member Monetary Policy Committee voted 6-3 kept its target for asset purchases at 375 billion pounds ($587 billion) this month, according to the minutes of their June 5-6 meeting published today in London. The pound was little changed.

“The doves have their view and the hawks have their views and there isn’t going to be much shifting,” said Marc Ostwald, a strategist at Monument Securities Ltd. in London. “Everything is focused on the U.S. and what it does for risk markets” and core bond markets including gilts, he said.

Benchmark 10-year gilt yields fell one basis point, or 0.01 percentage point, to 2.13 percent at 4:29 p.m. London time, after increasing eight basis points in the previous two days. The 1.75 percent bond due September 2022 rose 0.065, or 65 pence per 1,000-pound face amount, to 96.835. The 30-year yield fell two basis points to 3.42 percent.

Stimulus ‘Compelling’

Bank of England Governor Mervyn King lost in his final vote before being replaced by Mark Carney next month, the minutes showed. For some officials “the case for more monetary stimulus remained compelling,” the minority said.

While officials noted that the inflation outlook was “a little more favorable,” the majority said that inflation may the majority said that inflation may continue to be above the 2 percent target for the rest of the year.

Gilts handed investors a loss of 1.8 percent this year through yesterday, according to Bloomberg World Bond Indexes. German bonds dropped 1 percent and Treasuries declined 1.1 percent, the indexes show.

Bernanke will hold a press conference today in Washington after policy makers end their meeting. Bernanke said last month the Fed could reduce its $85 billion in monthly bond purchases if there’s sustainable improvement in employment. Bank of Canada Governor Stephen Poloz, who replaced Carney, is scheduled to make his first public speech since taking office today.

“In terms of central bankers, it’s an interesting day but clearly Bernanke has the spotlight,” said Jane Foley, senior foreign-exchange strategist at Rabobank International in London. On the pound, investors are “looking ahead to Carney and the market is anticipating that he is a dove, and that he could herald quite significant change,” she said.

The pound traded at 85.62 pence per euro after depreciating yesterday to 85.85 pence, the weakest level since May 30. Sterling was at $1.5655 after slipping to $1.5566 yesterday, the lowest since June 11.

The pound has strengthened 3.2 percent in the past three months, the best performer after the euro among 10 developed-market currencies tracked by Bloomberg Correlation-Weighted Indexes. Europe’s common currency gained 3.6 percent, while the dollar fell 0.9 percent.

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