Gilts Advance as U.K. Says Cunliffe Will Join Bank of EnglandNeal Armstrong
U.K. government bonds rose for a second day as the Treasury said Jon Cunliffe, a former adviser to Prime Minister David Cameron, would become deputy governor for financial stability at the Bank of England.
Two-year yields dropped toward the lowest in more than two months as European stocks declined, boosting demand for safer assets. The Bank of England’s Monetary Policy Committee led by new Governor Mark Carney meets on July 31 and Aug. 1. The pound strengthened for a third week versus the dollar before reports next week that economists said will show U.K. mortgage approvals increased in June and manufacturing expanded in July.
“This appointment is basically trying to give Carney a helping hand with regulation,” said Marc Ostwald, a strategist at Monument Securities Ltd. in London. “You’re gradually looking at the scenario where the MPC becomes a bit more like the Fed, with some members there to do a job that has less to do with monetary policy. Gilts are in a range.”
The benchmark 10-year yield fell four basis points, or 0.04 percentage point, to 2.33 percent at the 5 p.m. close in London after dropping two basis points yesterday. The 1.75 percent gilt due in September 2022 rose 0.355, or 3.55 pounds per 1,000-pound ($1,538) face amount, to 95.24.
The two-year yield declined three basis points to 0.30 percent after falling to 0.27 percent on July 19, the lowest level since May 9.
Cunliffe succeeds Paul Tucker, who is leaving for Harvard University after losing out on the BOE governorship to Carney last year. Currently the U.K.’s permanent representative to the European Union, Cunliffe will start at the central bank on Nov. 1, the Treasury in London said.
The appointment of Cunliffe is “excellent,” according to former central bank policy maker and Bloomberg Television contributing editor David Blanchflower.
The Stoxx Europe 600 Index of shares dropped 0.2 percent and the FTSE 100 Index of U.K. equities fell 0.5 percent.
Gilts returned 1.2 percent in the past month through yesterday, according to Bloomberg World Bond Indexes. German bunds rose 0.8 percent and Treasuries gained 0.4 percent.
The pound was little changed today at $1.5373, having strengthened 0.7 percent this week. It climbed to $1.5435 yesterday, the strongest since June 26. Sterling was also little changed at 86.32 pence per euro.
Mortgage approvals rose to 59,700 last month from 58,242 in May, according to a Bloomberg survey of economists before the Bank of England report on July 29. A gauge of manufacturing climbed to 52.8 in July from 52.5 in June, a separate survey showed before Markit Economics and the Chartered Institute of Purchasing and Supply issue the figures on Aug. 1.
The U.K. economy expanded 0.6 percent in the second quarter after growing 0.3 percent in the previous three months, the government said yesterday.
The BOE will keep its asset-purchase target at 375 billion pounds and its benchmark interest rate at 0.5 percent when the Monetary Policy Committee meets next week, according to Bloomberg surveys. Carney is scheduled to explain his approach to outlining the future path for interest rates in the central bank’s Inflation Report to be released Aug. 7.
“We know the growth outlook has been improving and that has been confirmed by the initial reading of the second-quarter GDP print, accordingly that’s had a positive impact” on the pound, said Chris Walker, a foreign-exchange strategist at Barclays Plc in London. “I’d rather be short pound heading into the Inflation Report,” he said, referring to a bet the currency will weaken.
Sterling weakened 1.4 percent in the past month, according to Bloomberg Correlation-Weighted Indexes that track 10 developed-nation currencies. The dollar declined 1.9 percent and the euro strengthened 0.3 percent.